Creating a Business Credit History in 3 Steps

After deciding the great idea for your business, there are several steps that must be completed in order for it to be started. Whilst some of these steps are more necessary than others, securing funding is pivotal for the life of new businesses, and can determine whether or not it even gets off the ground. Just like personal credit management allows consumers to access preferential rates on finance products, business credit works on a very similar basis.

Some startups are fortunate enough for family members and friends to extend them financial help, but for the rest of us, the only real sources of liquid will be small business grants and loans – and the only way to safely ensure these is with an established business credit history. This article will detail three simple steps to initiate your business’s credit history.

Establish the Business Properly

Setting up your business properly acts as a foundation for acquiring business credit. The business must have credibility to build credit, which requires that it is a formal business entity such as a limited liability company (LLC) or a corporation. Entities such as sole proprietorship should be avoided because personal income is attached to the business’s.

The next step after deciding the correct structure for your business is to set up an Employer Identification Number (EIN). This is a unique number granted to businesses in the US that employers require in order to submit their taxes. Eligibility for an EIN necessitates that your business is incorporated in the US and meets other requirements. 

EINs are required for filing business tax returns, opening business bank accounts and applying for loans, so are a requisite. They can be acquired for free on the Internal Revenue Service’s (IRS) website, fax or mail.

Many factors are considered by potential lenders when deciding whether or not to extend your business credit, such as whether it has a phone line offering 411 directory assistance, or a business website. Both of these signal your legitimacy to lenders and make you appear to pose less risk to them.

A DUNS number is the final step in this process – it identifies your business as unique and distinct from all others. This allows creditors to search for your business’s credit file and examine your credit history. A DUNS number can be obtained through Dun & Bradstreet.

Building Credit History

Having a history of your business’s credit is insufficient if it is poor or inconclusive (i.e. very short and therefore not a good indicator of your trustworthiness), it is necessary that good credit history is built from the beginning. There are many ways this can be achieved.

The first of these methods is to be punctual with the repayment of any and all bills and credits lines. Paying these bills on time, or early, is the most important way to maintain and build a credit score. Prioritizing bills by importance, setting up reminders on a calendar app and using a working capital loan are all ways to make this job easier.

One option for those with a limited credit history is to set up a Net-30 account; this links businesses with vendors that offer a ‘buy now pay 30 days later’ option on business goods and services. Repay these bills on time and the Net-30 vendor reports it to credit bureaus such as Dun & Bradstreet which creditors can review.

Further business credit can be built (when this foundation is established), with business loans and credit cards. These both require an established track record in your industry, evidence of your company’s profitability and a plan to repay the loan with interest that is set in stone.

Know what to Avoid

Some practices must be avoided when trying to build business credit as they are harmful to this end. For instance, whilst avoiding predatory lenders might seem obvious, they are becoming more and more sneaky. Do not accept expensive loans that seem good at the time, as they can be near impossible to repay and will swiftly bankrupt you.

Never pay business debts using personal accounts, as this indicates to creditors that you have bitten off more than you can chew debt-wise – and consequently that extending you further credit would be risky and unwise.

Do not assume Net-30 vendors report your repayments to credit bureaus, as many will not – avoid these.

Closing Statement

For more detailed information on how to build business credit as well as other issues associated with this, feel free to visit The Really Useful Information Company’s (TRUiC) website for more info.



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