How To Build Business Credit
how to build business credit is a critical component
developing a healthy, sustainable company. Smart business owners know
that their business credit ratings are essential to the ability to
obtain capital – the lifeblood of any company.
owners naturally think of credit in terms of its
importance in traditional bank lending. But bank financing is just one
slice of the business financing pie.
The single largest category of business financing in
the entire world is business-to-business credit –
known also as “corporate business credit” and “trade credit” – which
occurs when one company extends credit to another to purchase products
or services. So, even if private business capital is plentiful and
bank loans aren’t needed, building business credit is still worthwhile
for any company, regardless of size.
Establishing business credit is often an afterthought, if not
completely overlooked, by entrepreneurs starting a new
business. Credit for business is not a well-understood topic
and its importance is minimized by many “experts” who, because they
don't know how to build business credit either, advise
owners to use their personal credit to obtain the business financing
they need. In fact, personal savings, credit cards, retirement accounts
and home equity together are the principal source of funding for most
small- and medium-sized business operating in the U.S. today.
For most start-ups, the use of personal funds is unavoidable in the
initial phases of the business. But placing your personal assets and
credit score at risk is not a sound long-term business financing
strategy. It is a recipe for disaster.
Why You Need To Know How To Build Business Credit
All business owners should establish business credit separate from
their personal credit and work to improve their business credit
ratings over time. By building business credit you:
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- Protect your personal assets and credit score
- Take advantage of additional financial leverage to meet
business capital needs
- Prepare for any future lending needs
- Enjoy lower finance charges, insurance premiums and better
- Build credibility for your business
Ready access to credit and saving money on finance charges and leases
are the obvious advantages of a good business credit profile,
particularly in the long term. Capital is king in business financing,
and when you build business credit, you increase the odds that you will
have more of it in the future.
But the biggest advantage of having good business credit ratings is
that you can substantially reduce the financial risks inherent in
owning a business for yourself and your loved ones. By separating your
personal credit from the business, you protect your personal credit
scores and your ability to obtain credit in the future. And with proper
planning, your personal wealth can be shielded from business creditors
in the unfortunate event of a business failure.
How Business Credit Ratings Are Determined
There are three main repositories for business credit – Dun
, Experian Business
and Equifax Business
– and a number of
smaller ones, such as Client Checker, Business Credit USA and Kroll
The bureaus assign business credit ratings as numerical scores ranging
from 0 to 100, with 100 representing a lowest risk (best rating) and 0
representing a very high risk (lowest rating).
As is the case with your personal credit, a business’s credit scores
are based on a complex statistical model designed to predict the
likelihood of default. And they are dynamic, constantly changing based
on a host of factors, including:
If you’re looking into how to build business credit for the
first time, then you should check out the credit bureaus
All three of the major business credit bureaus have
plenty of information on the web to help you get started.
- Number of accounts (known as “trade lines”)
- Outstanding balances of open accounts
- Payment habits
- Credit utilization
- Trends over time
- Public records (judgments, liens, bankruptcies)
- Length of credit history
- Other characteristics (company size, industry, business
While there is no guaranteed way to improve a business
credit score, here are a few steps you can take to ensure that your
business credit report reflects the best scores possible for your
- Check your business credit report regularly and verify that
information in it is accurate and up-to-date.
- Establish business credit with companies that report
not all business creditors report their trade information.
- Pay your creditors on time. Historical payment behavior
creditors plays a major role in calculating your business credit score.
How To Build A Business Credit Profile
Establish Business Credit on Your Own
With time, patience and determination, you can build business credit on
your own. In fact, you can get off to a good start before even opening
your doors by creating a separate entity for the business (a
corporation or limited liability company), which allows a clean
separation of your business credit profile from your personal credit
To tackle the task of establishing
business credit on your own, you will need a solid foundation for your
company – a
business plan, corporate documents and all necessary licenses and
permits in hand. You must create a a viable business
on paper to be trated seriously by the credit bureaus, commercial
lenders, and vendors.
So, before you attempt to establish business credit profiles with the
bureaus, you will need to:
- Incorporate or form an LLC (Limited Liability Company) to
company is seen as a separate business entity
- Obtain a federal Employer Identification Number
- Open business bank accounts in your legal business name
- Set up a dedicated business phone line in your business
name and make
sure it's listed
Once you have these, you can apply to each bureau for a credit profile.
Finally, you'll begin making purchases for your business using your
available start-up capital. Your objective is to find vendors that will
allow you to establish business credit based on your personal credit
background and who agree to report your transactions to the three
At this point, your Investment in a well-written business plan will pay
off handsomely. When you initially begin to apply for separate business
credit, a formal business plan will demonstrate your commitment to
motivate them to believe strongly in your business. Once you have
succeeded in obtaining credit from one vendor, your chances of opening
accounts with others improve greatly. Provided you meet all of your
obligations to these creditors, within 12-18 months, you should have
respectable business credit rating from all three bureaus.
Another way to build business credit is to take out loans
from state or national business associations and agencies, such as the
Small Business Administration (SBA). Timely repayment of these loans
will quickly boost your business credit ratings.
To continue to build and improve your business credit profile, you will
follow guidelines not unlike those used for your personal credit rating:
- Pay on time
- Monitor your firm’s credit for accuracy and to ensure
reporting your prompt payments
- Limit the number of credit inquiries
- Do not open excessive credit
- Keep all licenses and permits current
Hire An Expert Who Knows How To Build Business Credit
is available to business owners who want faster
results than the 1-2 years it can takes to establish a business credit
profile on their own.
Though it’s true that building business credit is not all that
difficult, if done correctly, it is an intensive, time-consuming
process that can distract you from running your company. With
professional business credit services, you can build a business credit
profile quickly while leaving the tedious details in the hands of
A web search for “how to build business credit” or “credit for
business” will yield numerous companies offering business credit
services for fees as high as several thousand dollars. Be
particularly cautious when you see fantastic promises, such as
“instant” credit profiles or guaranteed credit scores. Since no one can
possibly control the inner workings of the credit bureaus, such claims
are plainly false. The procedures involved in building a business
credit profile are the same for everyone – a knowledgeable professional
can help you expedite the process, but nobody can bypass it.
Try to find a reputable company that offers a full-service
program – one
with a clearly defined, methodical approach and one that
business credit expert to guide you through each and every step of the
process. Ask for references and call a few to assure yourself that the
firm can deliver on its promises and meet your company’s requirements.
Good business credit services will offer a money-back guarantee if they
fail to deliver promised results.
Time is money.
Hiring a reputable business credit service company that
knows how to build business credit will allow you to focus your time
and effort where it is needed most – building your business