How to Establish Business Credit – Step-by-Step Guide

A ton of small businesses depend on business or personal credit to get money for expanding operations, acquiring inventory or buying new machinery. Short-term loans can also cover payroll and other recurring costs. Lenders want to be sure that the amount they loan out will be repaid at the agreed time. One of the ways through which they manage the risk of repayment is by assessing the credit rating and scores of the business filed by the major credit reporting agencies. This way, the banks decide if they will lend out money and the interest rate.

The business credit of a business will also be reviewed when they are shopping their services or bidding on projects. Every company needs assurance that they are involving themselves with a business that is capable of completing projects or delivering promised products. 

How do you build strong credit ratings and scores? The answer partly lies in your repayment of debts and it is not just about paying them on time. The following practices will go a long way in ensuring that you improve or establish the business credit profile of your company. Be very cautious when it comes to easy-and-fast solutions— the main purpose of the profile of your business credit is to show the financial health of your company over time. 

Establish the Business as a Separate Entity

Most business owners always consider credit even before they actually start the company. This is because potential business partners and lenders may judge a business’s credit outlook based on its structure. Corporations and LLCs (Limited Liability Corporations) are independent entities and are, therefore, a blank slate when first establishing credit ratings and scores. Separating the enterprise from the owner is the best route to take when you want to build your business credit.

Register for a Dun & Bradstreet D-U-N-S® Number

This number uniquely identifies your business and you can get it from Dun & Bradstreet for free. Some potential business partners and lenders will use it to assess the credit profile of your business. 

Acquire an Employer Identification Number (EIN)

You need this number, acquired from the IRS, to file the business’s taxes and to fill out paperwork.

Get a Bank Account for Your Business

A business bank account is necessary for the company’s transactions and with it, your enterprise will have a track record.

Pay On Time

Make all your business’s payments early or on time so you can have positive reports on your credit profile.

Ask Vendors for Trade References to Dun & Bradstreet

Trade credit is a very valuable form of business financing. When you make the payment on time, you will build a responsible financial behavior record. Ask your suppliers to report the payment history of your business to credit agencies.

Monitor the Credit Scores and Ratings of Your Business

The process of establishing the credit file of your business is not a one-and-done thing. Check the scores of your company regularly.