How to Build Credit for Your Small Business

Posted by on July 10, 2013 in Business Financing, Business Management [ 0 Comments ]

Build Small Business Credit How ToGood credit is essential for successfully maintaining your small business venture. The Small Business Bureau reports that delayed or insufficient funding — which can result from a lack of credit—stands as the second most common cause of business failure (Tweet this!). While your business may face difficult challenges as you start to grow, building credit does not have to be one of those challenges. Instead, make intentional choices and develop consistent habits to leverage the financial potential of your business.

Begin by establishing your business identity, which entails incorporating your business as either a corporation or a limited liability company, applying for an Employer Identification Number (EID), for tax and credit purposes, and getting a Dun & Bradstreet (DUNS) number assigned to individual businesses and useful for tracking credit information. The DUNS number adds you to a database of over 100 million businesses and allows companies from all around the world to view your credit information.

Related: 4 Simple Steps to Establish Stellar Business Credit

Once you create your business identity, take action by following these steps.

  • Manage Personal Credit — You need to establish your own history of good credit before you can take out loans and receive approval for business credit cards. Banks look at a business owner’s personal credit history when determining how much they will lend and the appropriate terms.
  • Open Business Accounts — Use your new EID and DUNS numbers to open business accounts for checking and savings. After using these accounts for smaller expenses, you can apply for loans based on the credit from these accounts.

Related: Get Started: Find a Small Business Checking Account

  • Check for Accuracy — Make sure the information that credit bureaus have for your personal and business account is correct and updated. Dispute any errors immediately, including paid bills or reduced credit limits.
  • Define Business Expenses — Use your business accounts to pay routine monthly expenses like business phone lines and utilities in rented spaces. Provide these companies with your DUNS number to confirm they report your payment history.
  • Evaluate Supplier and Customer Credit — Contact credit bureaus to determine if suppliers and customers consistently pay bills. Offer lower prices to worthy customers and avoid making large commitments to customers who typically pay late. This protects your cash flow.
  • Pay Vendors and Suppliers with Credit—Rather than making payments to vendors and suppliers up front, use credit accounts to make payments within 30 days. This way your business partners assist you in building a credit history. Request that this history be reported to major credit bureaus such as Experian, Equifax, TransUnion, and Duns & Bradstreet.
  • Apply for a Secured Credit Card — A secured credit card, which requires a deposit to cover the available balance, is a way to build credit when you first launch your business and avoid applying for a card that might be denied. Starting with smaller credit card accounts establishes a history that can make you eligible for larger credit limits in the future.
  • Acquire Credit Before You Need It — Even if you plan to expand your business down the road, request to raise your credit limit before you need to use the funds. This maximizes your credit ratio and provides access to credit if necessary. You do not want to be in a place where you are scrambling to get credit approval at the last minute.

RelatedInfographic: Business Financing Options to Fit Your Needs

  • Use Multiple Lenders — You may want to apply for credit from credit unions or smaller banks and loans from major banks. This protects you if one of the lenders changes policies, credit limits or interest rates.
  • Address Business Taxes — File business tax reports and pay any amount due to prevent your business credit score from decreasing. If you are confused about any portion of the form or how to handle certain expenses, speak to a tax expert instead of making guesses and putting the company at risk.
  • Make Consistent Payments — Always pay the full amount owed on time. This fundamental principle protects your credit and keeps your business from accruing debt.

About the Author: Alanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.


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