How to Build Business Credit
April 12, 2023
What is Business Credit?
Business credit, also known as commercial credit or trade credit, refers to the ability of a company to borrow money, obtain goods or services, and secure financing based on its creditworthiness. It is separate from the personal credit of the business owner and is an essential aspect of a company's financial health. If you’re considering starting a small business, understanding business credit, how it works and how you can both get and improve your business credit score is an important part of running your business.
A business credit score is a numerical representation of a company's creditworthiness, determined by credit bureaus such as Dun & Bradstreet, Experian, and Equifax. This score is calculated using factors such as payment history, credit utilization, business age, and public records like bankruptcies or liens.
Benefits of Building Business Credit
Here are some ways a good business credit score can provide benefits to a new business:
1. Easier access to loans and lines of credit: Lenders and financial institutions are more likely to approve financing for businesses with a strong credit score.
2. Better interest rates and terms: A good business credit score can help secure lower interest rates and more favorable repayment terms on loans and credit lines.
3. Improved supplier terms: Suppliers may offer better payment terms or discounts to businesses with strong credit, which can help manage cash flow more effectively.
4. Increased credibility: A strong business credit profile can enhance your company's reputation and credibility in the eyes of customers, suppliers, and potential investors.
5. Separation of personal and business finances: Building business credit allows you to keep your personal and business finances separate, minimizing personal liability and protecting your personal credit.
As a small business owner, it is essential to monitor and manage your business credit to ensure your company maintains a strong financial foundation and can access the necessary resources to grow and succeed.
How to Build Business Credit
Building business credit is an important step in the process of establishing a successful business. Having good credit allows you to access more financial resources and better terms, which can help your business grow and thrive. Here are some tips on how to build business credit:
1. Set Up a Business Bank Account: A business bank account is essential for establishing business credit. It will help establish a payment history with the bank, which can help you build credit. Make sure to use the account regularly and make all payments on time.
2. Establish Trade Lines: Trade lines are lines of credit that are established with businesses that you purchase goods and services from. Establishing trade lines and building a payment history will help build your business credit.
3. Get a Business Credit Card: Applying for a business credit card is another great way to build business credit. Make sure to use the card responsibly by paying off the balance monthly and avoiding late payments.
4. Monitor Your Credit: Monitoring your business credit is essential to ensure that it is accurate and up to date. Make sure to check your credit periodically and dispute any errors or inaccurate information.
5. Utilize Credit Reporting Services: Business credit reporting services such as Experian, Dun & Bradstreet, and Equifax can help you track and monitor your business credit. These services also provide an in-depth look into your business credit, allowing you to make informed decisions.
Building business credit is an important step in the process of establishing a successful business. Following these tips can help you build your business credit and access more financial resources and better terms, allowing your business to grow and thrive.
How to Get a Business Credit Card
To get a business credit card, follow these steps:
1. Determine your eligibility: Make sure you have a registered business with a tax identification number (EIN, employer identification number). Your personal credit score will also be considered, as it plays a significant role in the approval process.
2. Research different cards: Compare various business credit cards based on their rewards, interest rates, fees, and other features. Choose the one that best suits your business needs and spending habits.
3. Gather necessary documents: You will need to provide information about your business, such as the legal name, address, contact details, and annual revenue. You may also need personal information, such as your Social Security number and income details.
4. Apply for the card: Once you've chosen the card, complete the online application form, or visit a local branch of the issuing bank. Provide all the required information and submit your application.
5. Wait for approval: The bank will review your application and may request additional documents or information. Approval times vary, but it generally takes a few days to a few weeks.
6. Receive your card: If approved, you will receive your business credit card in the mail. Activate the card and set up any online accounts for managing the card.
7. Use the card responsibly: Make purchases for your business and pay off the balance each month to avoid interest charges and maintain a good credit history. This will also help you earn rewards and build your business credit profile.
How to Check a Business Credit Score
To check a business credit score, follow these steps:
1. Identify the credit bureaus: Business credit scores are calculated by various credit bureaus, such as Dun & Bradstreet (D&B), Experian, and Equifax.
2. Create an account: To access your business credit report, you will need to create an account with the credit bureau. For example, you can create a D-U-N-S number (a unique nine-digit identification number) with Dun & Bradstreet.
3. Purchase a credit report: Each credit bureau offers different credit report packages, which may include your business credit score, payment history, and other financial information. Select the package that best fits your needs and complete the purchase. Some credit bureaus offer free limited access to your business credit score or report, while others may charge a fee.
4. Review your credit report: Once you have purchased a credit report, carefully review it for accuracy. Check the payment history, credit utilization, and any public records, such as liens or bankruptcies. If you find any errors, contact the credit bureau to dispute the information and get it corrected.
5. Monitor your credit score: Regularly monitor your business credit score to track any changes and identify potential issues. This will help you maintain a healthy credit profile and improve your chances of securing financing or better credit terms in the future.
Remember that your business credit score may vary across different credit bureaus, so you may want to check your score with multiple bureaus to get a more comprehensive picture of your business credit profile.
- U.S. Small Business Administration (SBA)
- SBA - 10 stats that explain why business credit is important for small business
- Consumer Financial Protection Bureau Resources
- GovLoans.gov - Support for Funding a Small Business