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How to build your business credit in 5 simple steps

Good business credit is essential to help your company weather financially challenging times. Here's a step-by-step guide on how to build that credit.
Written by Cynthia Bowman, Contributor

Businesses need cash to run and grow. Unfortunately, cash is often hard to come by, making it necessary for business owners to find funding solutions. More than one-third of small businesses sought financing in 2020. Based on the statistic, it's likely you'll need to borrow at some point to keep your business running. As with personal credit, a business needs to establish good credit.

Similar to personal credit, your business credit score can affect whether you're approved for a loan or business credit card. Three business credit bureaus (Equifax, Experian, and Dun & Bradstreet) score companies between 0 and 100. You may be familiar with Equifax and Experian -- they also measure personal credit scores. The higher the business credit score, the more likely your company will qualify for a line of credit or financing. 

Don't wait until you're in a cash flow crunch -- the sooner you begin working on your business credit, the better. The following five steps will help you get started. 

1. Establish a business entity

It's common for business owners to combine their personal assets with their company's in the early stages. However, doing so makes it hard to establish the business as its own separate entity. Incorporating or forming a limited liability company (LLC) officially establishes the business. 

Once created, an Inc. or LLC typically protects you against personal liability from business-related events -- as long as you follow the proper guidelines to operate. It's important to start treating the new business entity as separate from you. Even if you're incorporated, for you to be truly protected, you must show you've taken the necessary steps to separate your personal finances from your company's. Doing so will not only help you against legal liability but will also establish business credit.

Incorporating is the first step to take for the business credit bureaus to recognize your business. Sole proprietorships or partnerships aren't enough. Once your business is officially established, you can start building a business credit history.

2. Apply for an Employer Identification Number

Once you have your Inc. or LLC established, you can apply for a free EIN. The EIN is like the Social Security number for a business. You'll need it to apply for business credit cards and loans, open bank accounts, and file taxes. You can apply online through the IRS in just a few minutes to receive your company's EIN. 

3. Open a business bank account

Once you have your Articles of Incorporation and an EIN, you can open a business account. It's best to do some research and compare what different banks charge for maintaining a business bank account, since they typically have more fees than a personal account. Although keeping your business and personal bank accounts with the same bank can be convenient, you may decide that a different bank or a credit union is a lower-cost alternative.  

Even if your company isn't very active financially yet, having a business bank account is one of the best ways to show that you've separated your personal assets from your company's. If you need to pay a business-related expense, it's best to "lend money" to your business (deposit the funds into the business bank account for the company to issue the payment). 

If you paid for items with your personal credit card, you could write yourself a check later reimbursing you for paying business-related expenses. The important part is to start keeping your personal finances separate from your company's.

4. Register for business credit

Equifax and Experian both automatically pull new business records from the Secretary of State. As soon as you form an LLC or incorporate, you'll be recognized. 

Dun & Bradstreet is the most commonly used business credit bureau and has its own system. The bureau creates three separate credit scores for your company based on public records, industry information, and more. 

To view your DB credit reports and make it easier in the future for lenders and suppliers to issue you credit, you'll need a data universal numbering system (DUNS) number. If you've done business with suppliers already, you may even already have one. 

Before you apply, check for a DUNS number by entering your company name. If you don't find a number, you can file with D&B to get one. But before you can access it, you'll need at least three trade references. Ask companies or suppliers you've done business with to report your payment history to D&B -- it's free.

5. Start building business credit

Now that you've taken steps to create an official business entity and the credit bureaus are tracking your company, it's time to start building a credit history for your company. One of the simplest and most effective ways is to establish trade lines. A trade line is basically a vendor that agrees to let you pay for goods later. Known as "net-30," many vendors will allow you to pay them within 30 days of receiving their goods or services. 

Even small trade lines help. Start with the companies that supply your business already. Ask them to give you terms and/or start reporting your activity to the credit bureaus (if they haven't already). The reporting is free. 

If you don't already have net-30 terms with suppliers, ask. Or consider the following companies:

  • Crown Office Supplies: Chances are your business will need some office supplies. Crown Office Supplies will extend a trade line and report it to the credit bureaus for an annual fee of $99.

  • Grainger: The industrial-supply company sells janitorial supplies and business equipment. Establishing a line of credit with the company is fairly simple, even for newer businesses. You'll need to call 1-800-GRAINGER (472-4643) to get started.

  • Uline: Another option for office supplies and business materials, Uline allows you to apply for an account. If you're approved, be sure to choose net-30 and checkout. Make small orders and pay your bill on time or early to establish a positive track record for your company. 

Monitor your DB credit reports. When you feel confident with the track record you've built, consider expanding into small business loans or applying for a business credit card that doesn't require a personal guarantee, such as Brex, Shell (for gas), or the Office Depot OfficeMax Business card.

FAQ: Does my business credit card report to the business credit bureaus?

Most business credit cards typically use your personal credit to approve you. If you've applied for a business or corporate card that requires your Social Security number, your card's history will not be reported to the business credit bureaus. To build business credit, look for business cards that don't ask for a personal guarantee.

FAQ: What is net-30?

Net-30 is a line of credit from a vendor or supplier that allows you to buy goods now and pay for them within 30 days. Small businesses should request a line of credit with net-30 terms from their suppliers to start establishing credit. Be sure to pay your bills on time, however, since your activity will likely be reported to the business credit bureaus.

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