Introduction
Establishing business credit is a crucial step for any entrepreneur looking to grow their business. It not only helps in securing loans and better interest rates but also separates personal and business finances, which is essential for financial health and liability protection. Having a strong business credit profile can help you qualify for better interest rates, higher credit limits, and more favorable repayment terms.
Lay the Proper Foundation
Before diving into building credit, ensure your business has these essential elements in place:
- Register your business as a legal entity (LLC, Corporation, etc.)
- Obtain an Employer Identification Number (EIN) from the IRS
- Open a dedicated business bank account
- Set up a business phone number
- Create a professional business website
- Register with Dun & Bradstreet to get a D-U-N-S number
Why Business Credit is Important
- Securing better financing terms: With a strong business credit score, you can negotiate better terms with lenders
- Protecting personal credit: By establishing business credit, you can keep your personal and business finances separate
- Enhancing business reputation: A good credit score can improve your business's reputation with suppliers and partners
"Commingling personal and business finances is one of the biggest mistakes new business owners make." - Small Business Administration
Building Your Credit Profile
Start with Vendor Credit
Begin building credit by working with vendors who offer net-30 payment terms and report to credit bureaus. Some popular options include:
- Grainger
- Uline
- Quill
- Office Depot
Apply for Business Credit Cards
Sequence for Applications
- Secured business credit cards
- Store credit cards
- Traditional business credit cards
Establish Trade Lines with Vendors
- Choose vendors that report to credit bureaus: Not all vendors do, so it's important to confirm this
- Negotiate payment terms: Aim for terms that allow you to pay within 30 days to build a strong credit history
Monitor Your Business Credit
Regular monitoring helps identify reporting errors and track progress. Check your reports with:
- Dun & Bradstreet
- Experian Business
- Equifax Business
Key Metrics to Track
| Credit Bureau | Important Scores |
|---|---|
| D&B | PAYDEX Score |
| Experian | Intelliscore Plus |
| Equifax | Business Credit Risk Score |
Best Practices for Maintaining Good Credit
- Keep credit utilization below 30%
- Make all payments on time
- Maintain accurate financial records
- Update business information regularly
- Review credit reports quarterly
- Avoid applying for too much credit at once
Documentation to Maintain
- Financial statements
- Tax returns
- Bank statements
- Accounts receivable/payable records
- Business plans and projections
Remember that building business credit is a marathon, not a sprint. Consistent, responsible financial management and patience are key to establishing a strong business credit profile that will serve your company well in the long term.
For additional guidance, consider consulting with a SCORE mentor or financial advisor who specializes in small business credit building. You can also visit the Small Business Administration (SBA) website for more information on business credit.
For further reading, consider checking out NerdWallet's guide on building business credit.