How to build business credit

Business credit can help you secure loans, negotiate better payment terms with vendors, and even get access to higher credit limits. Below is a step-by-step guide on how to build business credit.

1. Establish Your Business Legally

Before you can build business credit, your business needs to be legally recognized. This means you should:

Register your business with the appropriate local, state, and federal authorities. Decide whether you want to form an LLC, S-Corp, or Corporation, as these business structures separate your personal credit from your business credit.

Get an Employer Identification Number (EIN). An EIN acts like a Social Security Number for your business and is required for tax purposes and for opening business bank accounts.

Open a business bank account. This will allow you to separate your business finances from your personal finances, making it easier to track expenses and build business credit.

2. Register with Business Credit Bureaus

There are several major business credit bureaus that track and report business credit. The three most significant ones are:

Dun & Bradstreet (D&B)

Equifax Business

Experian Business

Start by creating a profile with these bureaus. The most common way to do this is by applying for a D-U-N-S number with Dun & Bradstreet, which is essential for building a credit history. D&B uses this number to track your business’s creditworthiness.

3. Establish Trade Lines with Suppliers

One of the easiest ways to begin building your business credit is by establishing trade lines with vendors or suppliers that report to business credit bureaus. These vendors may extend credit to your business, allowing you to purchase goods or services on credit and pay them back over time.

Negotiate with suppliers to provide terms such as Net 30, Net 60, or Net 90 (referring to the number of days you have to pay the bill). Many suppliers report payments to credit bureaus, which can positively impact your credit score.

Start small with vendors who are known to report to the bureaus and make sure to pay your bills on time (or earlier if possible).

4. Open a Business Credit Card

A business credit card can be a useful tool for building business credit. Choose a business credit card that reports to the major business credit bureaus. Many business credit cards offer rewards, cashback, and other perks, and they can help you manage your expenses while establishing credit.

Use the card regularly and keep the utilization ratio (the percentage of your credit limit used) under 30%. High utilization can negatively affect your business credit score.

Pay your bill on time every month. Late payments will hurt your business credit and may result in penalties or higher interest rates.

5. Pay Your Bills on Time (or Early)

One of the most crucial factors in building and maintaining good business credit is ensuring that you always pay your bills on time. Payment history makes up a significant portion of your credit score, so consistently paying on time can help you build a positive credit profile.

Set up reminders or automatic payments to avoid missing payment due dates.

Consider paying early when possible, as this demonstrates good financial discipline and may help you secure better credit terms in the future.

6. Monitor Your Business Credit Report Regularly

Once you've started building your business credit, it's important to keep an eye on your credit reports. This allows you to catch any errors or discrepancies, track your progress, and ensure that your credit history is accurate.

Regularly request reports from the major business credit bureaus.

Review your credit score and make sure all information is up to date and accurate.

7. Build Relationships with Lenders and Creditors

As your business grows and you establish a credit history, start building relationships with lenders and creditors who can offer higher credit limits and better interest rates. These relationships can provide valuable opportunities to leverage credit for expansion or to secure loans in the future.

Establish strong relationships with your suppliers, vendors, and banks, as these entities may offer better terms as your business credit improves.

Use your business credit wisely by borrowing what you need and paying off debts quickly to maintain a strong credit profile.

8. Avoid Personal Guarantees

When possible, avoid using personal guarantees to secure business credit. Personal guarantees mean that your personal credit is tied to your business credit. This defeats the purpose of separating the two and can risk your personal assets if your business fails to repay a debt.

Apply for business credit that doesn’t require a personal guarantee by demonstrating your business’s creditworthiness.

Over time, as your business builds its credit profile, you should be able to qualify for more credit options that don’t require a personal guarantee.

Conclusion

Building business credit is a critical aspect of establishing your company’s financial health and securing the resources you need for growth. By following these steps—setting up your business legally, registering with credit bureaus, establishing trade lines, using business credit cards, paying bills on time, monitoring your credit, and building strong relationships with lenders—you can gradually build a strong business credit profile.

Remember that building business credit is a long-term process, and the more responsible you are with managing your credit, the more opportunities you’ll have for financing, better terms, and overall business growth.