Posted by Fred Lake

Building Credit as Small Business: Is it for you?

Building Credit as Small Business: Is it for you?

Business credit may open doors to greater amounts of capital, but it takes time to build.

Trying to manage the day-to-day operations of your business is already big enough on your plate being a small-business owner. If scaling up in the near future is in your mind, then you might want to set aside some time to think about how to build business credit. 

Is business credit important?

Lower insurance premiums or interest rates is what a strong business credit leads. Getting approved for a lease, business line of credit or business loan and securing better terms from vendors are some of the things a strong business credit takes you in an advantage. 

Separating your business’s finances from your personal finances will be easier once you’re building business credit

After starting your business, you may find out that when taking out a business loan or opening a business credit card, you need to sign a personal guarantee. This situation could put your personal assets at risk because the guarantee that you signed basically means that if the business will not be able to pay back the debt, you will be personally liable for it. You may qualify for a business loan or credit without a personal guarantee once you establish business credit.  

Below are the things that you should know on how to start building and managing your business credit. 

1. Check your credits (business and personal)

To check your business credit reports, there are several ways to do so. If you don’t know if your business has credit, then you don’t have to worry at all. 

For the bureaus to give you free access to your business credit reports, there isn’t a legal requirement unlike with your personal credit report. You can get a full copy of your business report for free from all three of the major business credit bureaus -- Dun & Bradstreet, Experian, and Equifax. Through NAV, a company that helps business owners build and manage their credit, you can get access to your Experian and Dun & Bradstreet report. 

According to NAV’s head of market education, Gerrie Detweiler, many business owners find that having both good business and personal credit is essential. She also suggests that you should also review and learn about building your personal credit. 

When a business is young, some lenders may check the owner’s personal credit. Others may check business credit and some check both, according to Detweiler.

2. Your business credit should be established

There is a possibility that your business hasn’t established any credit yet if you didn't find anything when you check your business’s credit reports. This might happen if for your business expenses you’re using a personal credit card since your payments will only reflect on your personal credit reports. 

Your information related to your business is where others solely rely on although some business-scoring models can generate a business credit score based on your personal and business credit history and other information of business financial.

 It will be a better idea to take the following steps to establish business credit.

  • To ensure your business and personal identities are separate, incorporate your business or form an LLC (limited liability company). 
  • To identify you as a business entity, get a federal employer identification number. The IRS offered this service for free. 
  • Make sure you use your legal business name if you will open a business bank account.
  • Make sure that the dedicated business phone you get is listed under your legal business name. 
  • To identify the physical location of your business, you should register with Dun & Bradstreet to get a D-U-N-S Number. This is a nine-digit number and free for all businesses that are required to register with the federal government for contracts or grants. 

3. Apply for a business credit card

You will need accounts and vendors that report your payments to the credit bureaus if you want to build your business credit profile. It is best to start with a business credit card. 

To business owners, the benefits and rewards programs that business credit cards offer are more helpful than the features or rewards on a personal credit card. 

4. Work with vendors that report payments and pay them early

It is better to ask the vendors if they report the payments that you pay on terms now than assuming that they do. If they don’t, better consider opening an account with a vendor after you verify that they will make a report of your payments. 

You may get up to 80 as a credit score if you always pay on time. Credit scores range from 1 to 100, with 100 being the best. You should also know that you need to pay vendors early to get the highest PAYDEX score. 

Bottom line

It is very important to start early if you want to build your business’s credit because building it, can take time. Establishing your business credit now can help give you a safety net and potential savings in the near future whether or not you foresee needing a loan or line of credit. 

Fred Lake
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