Building Business Credit for Small Business Owners
Building Business Credit for Small Business Owners
Written by Rumella Cameron, CEO
Building business credit is a fundamental step for small business owners seeking to establish a robust financial foundation and facilitate future growth. Unlike personal credit, which is tied to an individual’s financial history, business credit is linked directly to the company itself. By developing a strong business credit profile, small business owners can access better financing options, including loans and credit lines, with more favorable terms. This not only helps in managing cash flow and funding expansion but also strengthens relationships with suppliers who may offer better payment terms and conditions. Additionally, a solid business credit score can lead to reduced insurance premiums and enhance the overall credibility of the business. To build business credit, owners should start by ensuring their business is properly registered, obtaining an Employer Identification Number (EIN), and maintaining a consistent payment history with vendors and creditors.
Building business credit is a crucial step for any small business, helping to facilitate easier access to financing and improving terms with suppliers. Here are the key steps to building business credit:
- Establish Your Business Entity: Make sure your business is legally registered as an LLC, corporation, or another structure that separates business finances from personal. Obtain a federal Employer Identification Number (EIN) from the IRS.
2. Open a Business Bank Account: Use your EIN to open a business checking account in the legal business name. This will help you keep business and personal finances separate.
3. Register with Dun & Bradstreet: Obtain a D-U-N-S number, which is a nine-digit number that uniquely identifies each physical location of your business. It’s used to establish your business credit file with Dun & Bradstreet, one of the main business credit bureaus.
4. Establish Credit with Vendors/Suppliers: Build relationships with vendors and suppliers that report to the major business credit bureaus (Experian Business, Equifax Business, Dun & Bradstreet). Ensure you pay these vendors on or ahead of schedule.
5. Get a Business Credit Card: Obtain one or more business credit cards that are not linked to your personal credit. Use these cards for business expenses and pay the balances in full and on time.
6. Pay Bills on Time: Perhaps the most important step, always pay your bills on time. Late payments can negatively impact your business credit score.
7. Monitor Your Business Credit Reports: Regularly review your business credit reports for inaccuracies or fraudulent activities. You can obtain reports from major credit bureaus like Dun & Bradstreet, Experian Business, and Equifax Business.
8. Increase Credit Utilization Ratio: Responsibly managing your credit by using a reasonable amount of your available credit can help build your business credit. However, try to keep your credit utilization ratio under 30% to positively impact your score.
9. Ensure Your Business Information Is Up to Date: Regularly update your information with all business directories, credit bureaus, and trade references. Inconsistencies can cause issues with credit reporting.
Building business credit is a process that can significantly benefit your business in the long run by providing better financing options, improving relationships with suppliers, and potentially lowering insurance premiums.
We hope these tips were helpful!