Many small business owners handle business expenses with their personal credit or fail to improve the business credit line they already have. Establishing good business credit can help companies lower their interest rates, secure business relationships with suppliers, decrease insurance premiums and get critical loans in the future. Here’s a comprehensive 10-step guide to building your business credit:
1. Establish your company structure and obtain your EIN
If you haven’t established a business structure or secured an Employer Identification Number, take these steps before opening your business credit. Choose which structure best fits your business type then apply with the IRS for your EIN. Properly establishing your business will help you secure a credit line under your business name.
2. Avoid using personal information to apply for business credit, if possible
You cannot establish business credit as a sole proprietor. However for legal business entities, such as LLCs and corporations, it’s important that you secure business credit cards and loans under your business name rather than your personal one. If you’ve already secured business loans with your personal information, if possible, try to change the loan so that it’s under your business name.
3. Register with the business credit bureau
In order to build and manage your business credit you must to register your information with a business credit bureau. The most widely recognized business credit bureau is Dun & Bradstreet. You can register with D&B here, and check if you’re already on file from previous credit lines.
If you’re considering other business credit bureaus, such as Equifax, Experian, Standard & Poor’s, ClientChecker or BusinessCreditUSA you can read more about them here.
4. Check that you are in compliance with credit market requirements
There are several common requirements for establishing business credit, including establishing a unique business phone line. Once your phone line is created, register it with Directory Assistance and the White Pages.
It’s important that your business has obtained the proper licenses and permits to comply with local, state and federal regulations. Check out License123®, a free service, to ensure you have secured all of the required licenses.
5. Establish trade credit and apply for a business credit card
Apply for vendor credit with a business that reports regularly to a business credit bureau, and start purchasing from them under your business name. Apply for a business credit card through your bank, or research other credit card providers that fit your needs and offer useful rewards.
6. Keep your balance low and pay on time
Pay off your balance each month, or if you must maintain a balance over several months, keep it low. Always pay your credit card bills and vendor invoices on time.
7. Make sure your payments are reported
According to D&B, one third of all businesses listed with Dun & Bradstreet face a decline in their credit score each month. To prevent this from happening to you, make sure that the vendors you purchase from are reporting your transactions.
Some smaller suppliers may not report your payments to the business credit bureau, in which case you should put together a trade-reference sheet of those companies with which you do business. Make sure your trade-reference sheet contains at least 3 references (including names, contact information and credit limits) to supplement your official business credit report.
8. Grow your capital
Increasing your company’s overall worth (relative to its debt) will help boost your credit score and increase the likelihood of securing further loans. If business debt is negatively affecting your credit score, another loan will only exacerbate this; in this circumstance you may consider seeking capital investment, since these funds will not be counted as debt.
9. Keep inactive credit lines open
Even if you no longer use a line of credit, do not close it. Closing inactive credit lines will lower your total available credit, which in turn lowers your business credit score.
10. Check your credit reports
Check your business credit records on a regular basis through D&B and make sure that they are correct and current. You can also occasionally check the full credit report on your business, to see your credit score and determine what potential lenders will see.
Written by Rochelle Bailis