How To Establish and Build Business Credit: 6 Steps Made Simple

Establishing and building business credit is critical for the growth and sustainability of any business, whether it’s an early-stage startup or a seasoned corporation. Just like individuals rely on personal credit scores, businesses also have credit profiles that lenders, suppliers and other stakeholders scrutinize to assess financial health and credibility.

This guide will help you with establishing business credit, and provide you with actionable steps to navigate this important aspect of business finance.

6 Steps to Establish and Build Business Credit

1. Establish your business as a legal entity. The first step in building business credit is to formalize your business as a distinct legal entity. You should consider whether your business is a sole proprietorship, partnership, C corporation, S corporation or limited liability company (LLC). The IRS can help you learn about those types of business structures. Establishing your business as its own legal entity segregates personal and business finances, laying the groundwork for a separate credit history tailored to your company’s needs.
2. Obtain an Employer Identification Number (EIN). An Employer Identification Number (EIN) is like a Social Security number for your business. This unique identifier is important as it will allow you to do things such as open a business bank account, file taxes and apply for credit. Your EIN serves as the key to your business’s financial operations.
3. Open a business bank account. With your EIN, you can now establish a dedicated business bank account in your company’s name. This helps set clear boundaries between personal and business finances. Plus, a business bank account is typically required when you apply for business credit.
4. Apply for business credit. Leveraging business funding options such as a business credit card, line of credit or a small business loan can be a good strategy for kickstarting your business credit journey. Keep in mind that to build good business credit, you’ll need to maintain good credit habits.
5. Establish trade lines with suppliers. Establishing trade lines enables you to buy goods or services for your business on credit and make payments to the vendor within agreed-upon terms. This showcases your ability to manage credit responsibly and may help build your business credit profile.
6. Monitor your business credit report. Check your business credit report on a regular basis to ensure the accuracy and currency of all information. Address any errors or discrepancies as soon as possible to protect the integrity of your credit profile and your business’s financial standing.

How Long Does It Take to Build Business Credit?

The timeline for building business credit depends on various factors, but mostly comes down to your business’s financial practices. Generally, it may take anywhere from six months to a year of consistent credit activity to establish a robust credit profile for your business. For some businesses, it may take longer than that.

How Fast Can a Business Build Credit?

While it can take some time, there are few things you can do to help build business credit faster. Making timely payments, utilizing credit properly, and diversifying credit sources will help to accelerate credit building. Monitoring your business credit will be important to nurturing this process, so make sure you’re familiar with how to check your business credit and read your report.

What Is a Good Business Credit Score?

Business credit scores depend on the individual credit bureau, but typically range from 0 to 100, with higher scores indicating lower credit risk. A good business credit score is generally above 80 from Dun & Bradstreet, or above 75 for Experian Business. Lenders and suppliers rely on your business credit score to gauge creditworthiness and determine approval and terms of credit.

Is Business Credit the Same as Personal Credit?

While there are some similarities, business credit and personal credit are different. Business credit hinges on the credit history and financial performance of a business entity, whereas personal credit pertains to the credit history of an individual.

However, during the early stages of business credit establishment, lenders may factor in personal credit history when evaluating the creditworthiness of small business owners. Business owners with a limited credit history but fair credit may search for a “no credit check business loan,” which generally refers to funding that uses a soft credit inquiry rather than a hard credit inquiry.

The Bottom Line

Establishing and nurturing business credit is critical to unlocking growth opportunities. By sticking to the steps defined in this guide and embracing sound financial management practices, you can cultivate a strong credit profile for your business. With a strong credit profile, you’ll have improved access to vital capital and the resources essential for sustained success. Remember, building business credit is a marathon, not a sprint. Commit to the journey, and reap the rewards that will propel your business to greater heights.

Small Business Owners Sound Off: How Did You Build Business Credit?

Consistent Purchases and Differentiated Credit Sources

At our company, planting strong bonds with suppliers as well as manufacturers is the core to building our business credit.

Allow me to share a tip ᅳ by frequently and consistently making purchases from reputable sources and paying invoices at a steady pace, no rush and no lates, you actually… build credibility and enhance your credit history which paves the way for higher credit limits and better financing options.

Differentiating credit sources, I have to say, is another smart move. Instead of relying solely on one vendor, try to spread your credit utilization across a bunch of different suppliers to improve your credit profile and minimize risk. Additionally, I suggest regularly monitoring your business credit report with services like Dun & Bradstreet. They’re absolutely amazing in seeing to it that you catch any errors made early.

John VanDerLaan

Deer Hunting Guide

Separate Personal and Business Finances

The first thing we had to do was take deliberate steps to separate personal and business finances. We established our business as a separate legal entity and opened a dedicated bank account to guarantee a clear financial separation.

It’s also worth investing in a business credit card that you’ll use exclusively for work-related expenses to build a positive credit history. If your business sells goods, it’s worth establishing trade lines with suppliers and vendors who report payment histories to business credit bureaus.

If you have a SaaS B2B business such as ours, however, try to form strategic partnerships with established companies that already have a proven credit track record. This way, you can leverage these connections and credibility to strengthen your own credit profile.

Stefan Chekanov

Brosix

The “Credit Trifecta”

In my experience, the best strategy for building business credit is focusing on what I call the “credit trifecta” — paying vendors on time, limiting personal guarantees, and checking your business credit report regularly.

Paying vendors on time is critical. Set up automatic payments if possible, and double-check that payments have been received. Even one late payment can hurt your score and reputation. Limiting personal guarantees, like signing a personal credit card or loan to fund the business, also helps establish your business as a standalone entity.

Finally, check your business credit report frequently to ensure there are no errors or signs of fraud. Take advantage of your free reports from the major bureaus and look for any discrepancies in your payment history, credit limits, or scores. Staying on top of your business credit and addressing issues early is the key to building a strong profile that will benefit you for years to come. With time and consistency, you’ll establish a solid payment history and be able to access credit in your business’s name rather than your own.

Gauri Manglik

Instrumentl