How to Establish Business Credit

Building a strong business credit profile is crucial for any company aspiring to grow. Like personal credit, it can impact the ability to secure financing for future investments. However, establishing business credit is a deliberate and strategic process. Understanding how to establish this is the best way to support a company’s financial needs.

1. Set Up Your Business Properly

Building business credit starts with establishing a good foundation. Registering as an LLC or corporation is essential, as it creates an enterprise as a separate entity for credit reporting purposes.

Next, startups should obtain an employer identification number. This is a unique identifier that is required for tax purposes, opening a business bank account and establishing credit. It signifies to credit bureaus and lenders that the brand is legitimate.

Once this step occurs, the venture should have a dedicated bank account separate from personal and business finances. This separation is vital for record-keeping and demonstrating stability.

2. Obtain a Business Credit Card

Securing a business credit card is one of the most common ways to build credit. It separates personal and corporate expenses, making managing money and maintaining records easier.

Of course, it is also critical for proving expenses to the IRS, so keeping records for at least three to seven years is essential. Otherwise, the organization may audit the company, making it challenging to obtain these records once discarded.

Simultaneously, it provides an opportunity to demonstrate responsible credit usage. When choosing a business credit card, it’s important to consider interest rates, rewards programs and fees. Once obtained, using the card for regular expenses and paying it off in full can significantly boost the credit score.

3. Apply for a D-U-N-S Number

The Data Universal Numbering System number is a unique nine-digit identifier issued by Dun and Bradstreet. Lenders, suppliers and credit reporting agencies use this number to track credit history and financial health. Obtaining it is straightforward, and enterprises can apply for it online through Dun & Bradstreet’s website.

4. Secure Lines of Credit From Suppliers

Suppliers often provide trade credit to corporations when they purchase goods from them. This enables the latter to establish credit accounts with vendors and pay for goods or services later, depending on the net terms.

Business owners can set up trade lines by identifying small vendors who report payment history to major credit bureaus. Apply for Net 30 accounts and ensure the entity uses and pays off the credit promptly.

5. Maintain a Positive Credit History

A good track record with credit bureaus is key to improving a business credit profile. Otherwise, the score can go way down and prevent a brand from securing future financing. This step involves paying all bills on time and fully paying balances off.

Additionally, keeping credit utilization low is important, as it can impact credit rating. Therefore, it is essential to use only some of the available funds. Ideally, businesses should keep their utilization below 30% or more.

6. Choose Lenders that Report to Credit Bureaus

One way to ensure the business credit remains strong is by choosing lenders that report to business credit bureaus. Reporting to major credit bureaus ensures documentation of timely payments and responsible credit usage. Therefore, before applying for loans, credit cards or lines of credit, ask the lender if they provide this type of reporting.

7. Establish a Good Relationship With Your Bank

A positive banking relationship is crucial to obtaining better financing options, favorable terms and personalized financial advice. As such, it’s important to manage a business checking account responsibly. Companies should also engage with the bank’s business advisors and attend their events. Over time, this relationship can establish higher trust and increase access to financial services.

However, a bank should also be in good standing with an organization. When choosing an institution to bank with, ensure it prioritizes strong security measures. Approximately 54% of phishing attacks on corporations have led to client data breaches. A bank that works actively to protect financial information is key to building a trusting relationship.

Building a Strong Business Credit Foundation

Building and maintaining good business credit is vital to ensuring a startup’s financial health and growth potential. By following the right steps, entities can set a solid foundation for their economic futures. Start implementing them today to guarantee success for tomorrow.

Devin Partida writes about investor technologies, big data and apps. She is also the Editor-in-Chief of ReHack.com.