Just like individuals, businesses have credit scores that reflect how they handle debt. A strong business credit score can open doors to new financial opportunities, helping your business grow and succeed. But how do I build business credit? Here’s a step-by-step guide to help you get started.

What Is Business Credit?

Business credit is a score that measures your business’s ability to manage debt. It is similar to a personal credit score but is tied to the business rather than the individual owner. Lenders, suppliers, and vendors may review your business credit score when you apply for business loans, credit cards, or trade credit. Business credit scores typically range from 0 to 100, with scores above 75 considered excellent.

Credit bureaus calculate business credit scores based on factors like debt load, payment history, and how long your business has been operating. Having a good business credit score can benefit your company in many ways.

Benefits of Building Business Credit

Building business credit can provide numerous advantages:

• Access to More Financing: A strong business credit score allows you to secure larger loans and lines of credit. For example, while personal loans may be limited, business loans through the Small Business Administration (SBA) can reach up to $5.5 million.
• Lower Cost of Doing Business: Good business credit can lead to lower interest rates on loans and lines of credit. You may also qualify for lower insurance premiums, equipment leases, and real estate leases.
• Financial Safety Net: Establishing business credit gives you access to lines of credit that can help your business during slow periods. This allows you to cover payroll, inventory purchases, and other expenses.
• Improved Trade Credit Terms: Vendors are more likely to offer favorable trade credit terms if you have a solid business credit score. This can boost your cash flow by extending the time to pay your suppliers.
• Build Trust with Clients: A good credit score can make potential clients and business partners more confident in working with you, as it reflects financial stability.

Now that you understand the benefits, let’s explore how to build business credit.

How Do I Build Business Credit?

Here are eight essential steps to help you build and maintain strong business credit.

1. Register Your Business

The first step in building business credit is officially registering your business. You can register as a Limited Liability Company (LLC), C corporation, or S corporation, depending on your needs. This step helps establish your business as a legal entity. Consult a lawyer or tax professional to determine the best structure for your business.

2. Apply for an Employer Identification Number (EIN)

An EIN is a unique number assigned by the IRS for tax purposes. You’ll need an EIN to open business bank accounts and file business taxes. This step is crucial for separating your business and personal finances.

3. Apply for a D-U-N-S Number

A D-U-N-S number from Dun & Bradstreet allows your business to be listed in its database, helping to establish your company’s credibility. This number is often used by banks, lenders, and vendors to verify your business’s legitimacy and track payment activity.

4. Establish Your Business Presence

To further build credibility, make sure your business has a legitimate online and physical presence. Set up a business address, phone number, website, and email that are separate from your personal information. These details demonstrate that your business is a professional operation.

5. Open Business Bank Accounts

Open a business checking and savings account in your company’s name. This step is important for managing your cash flow and separating your business and personal finances. Choose a bank that offers the features you need, like easy access to credit or payment processing services.

6. Apply for Trade Credit

Trade credit is one of the simplest ways to start building business credit. By working with vendors and suppliers who allow you to make purchases on credit, you can establish a credit history. Make sure these vendors report your timely payments to business credit bureaus.

7. Apply for Business Credit Cards

Business credit cards are another great way to build credit. Card issuers will check your personal credit score when you apply, but it’s important to ensure they report your payments to commercial credit bureaus. Pay your balance on time to start building a solid business credit history.

8. Use Business Credit Responsibly

Finally, always use your business credit wisely. Keep your credit utilization low—ideally below 30% of your available credit limit. Timely payments and responsible use will help boost your business credit score over time.

Ways to Use Business Credit

Once you’ve built business credit, there are several ways to use it to your advantage:

• Cover Operating Expenses: Use business credit cards to cover daily expenses like supplies and travel. Many cards offer rewards that can save you money.
• Stretch Payment Terms: Use trade credit to extend payment terms, allowing you to keep cash on hand for longer.
• Finance Short-Term Needs: Business lines of credit can help you cover short-term expenses like inventory purchases or payroll.
• Apply for Loans: Once your business credit is established, you can apply for larger business loans to fund expansion or new projects.

Frequently Asked Questions

How Do I Build Business Credit Quickly?
Follow the steps outlined above and make timely payments on all your business accounts. Using credit responsibly and ensuring your vendors report to credit bureaus can help you build credit faster.

Are Business and Personal Credit Linked?
While they are separate, some lenders may check your personal credit score when you apply for business credit. However, as your business credit grows, it will become the main factor lenders consider.

Can I Build Business Credit Without Personal Credit?
It’s possible, but more challenging. Some business credit cards and loans require a personal guarantee. However, trade credit and business loans from certain lenders can help you build business credit independently.

How Long Does It Take to Build Business Credit?
Building strong business credit takes time. Typically, it may take six months to a year of responsible credit use to establish a good score.

The Bottom Line

Building business credit is crucial for accessing financing and ensuring your company’s growth. Now that you know how do I build business credit, follow these steps to establish a strong foundation. Regularly monitor your business credit score, use credit responsibly, and take advantage of the opportunities that good credit can provide for your business.

If you ever need expert assistance or guidance on your credit journey, don’t hesitate to reach out to the Nerds! Additionally, stay updated with the latest tips and information by following us on Facebook, Instagram and TikTok!