How to Build Business Credit for a Small Business 

September 01, 2023 | Author: EZ Capital · Business Financing
How to Build Business Credit for a Small Business 

In the United States, whether you’re running a restaurant, a spa, or a logistics company, establishing a strong business credit history is crucial as it serves as a key pillar for the growth and security of your enterprise.

A robust business credit history can help your business secure loans and credit lines for expansion, payroll, and supply purchases, often at lower interest rates and insurance premiums.

Here, we will provide an overview of the fundamental steps involved in establishing business credit efficiently.

01. What is Business Credit

Think of it this way: just as individuals may buy something without immediate cash on hand using a credit card and then pay in installments, businesses often need to borrow money for purchases or services. However, borrowing typically requires some form of assurance, much like banks require individuals to have stable income when using credit cards. For businesses, this assurance comes in the form of business credit.

Similar to how individuals have credit scores that reflect their repayment history, businesses also have credit scores that assess their ability to repay. A high business credit score makes it more likely for a business to obtain loan opportunities when needed.

02. Credit Scores Businesses Need

Business loan providers typically consider credit scores between 640 and 700 as good but not excellent. SBA and traditional loans typically require a credit score of 680.

03. How to Build Business Credit

Register Your Company:

If you haven’t already, establish a legitimate business entity, such as a Limited Liability Company (LLC) or Corporation. This creates a clear separation between your personal and business finances, which is essential for building business credit.

Obtain an Employer Identification Number (EIN):

An EIN is similar to a social security number for your business. It’s necessary for opening a business bank account and building credit.

Open a Business Bank Account:

Choose a bank that offers business accounts. Use this account exclusively for business transactions to establish clear financial records.

Apply for a D-U-N-S Number:

A D-U-N-S number is your business’s unique identifier. Credit agencies use it to track your business’s credit history. You can apply for a D-U-N-S number from Dun & Bradstreet.

Start Small to Build Credit:

Begin by applying for a business credit card. Look for ones designed for small businesses that report to business credit agencies. Make small purchases and pay the bills on time.

Establish Credit Lines with Suppliers:

Work with several suppliers/vendors (at least five) to build credit for your organization to use for purchases. Ask them to report your payment history to credit bureaus.

Pay Bills On Time:

Timely payments are crucial for building a positive credit history. Pay all bills, including loans, credit cards, and supplier invoices, by their due dates.

Monitor Credit Reports:

Regularly check your business credit reports from major credit agencies like Dun & Bradstreet, Experian, and Equifax. Ensure the information is accurate and correct any errors promptly.

04. Insights from EZ Capital Financing

Building a business credit score and rating for a small business is not an overnight task. According to experts, it can take three years or even longer, though some creditors might only require one year. Therefore, as a small business, follow the outlined steps to establish and enhance your business credit. Maintaining a high score and rating will serve as an accelerator on your business’s path to future success!