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6 Ways to Build Your Business Credit Fast

Post author Matt Craig avatar

If you have ever financed a purchase using a consumer loan, you have at least an idea of the importance of your personal credit score. You also understand the impact of personal credit on your ability to access loans and other financial products.

As a business owner, however, you might not know much about your business’ credit rating – what it is, how to establish it, and how to build it. Well, you’re about to find all that out. 

If your business needs credit, a strong personal credit rating is not all you need; you also need a strong business credit or the credit will be more expensive, or harder to acquire.

If you want your business to conveniently be able to access the required financing if the need arises, here is what you need to know.

What Is Business Credit?

Business credit and personal credit have some similarities in that it illustrates the creditworthiness of your business, similar to how personal credit shows whether you are creditworthy as a borrower. Both types of credits are based on financial history, with business credit being based on the financial history of your business and personal credit being based on your personal transactions. Your financial history here means how you have been handling any credit extended to you or your business.

The difference is that personal credit is linked to your social security number (SSN), whereas business credit is linked to your employer identification number(EIN). Unlike personal credit where credit scores follow the same tracking methodologies, different companies and industries offer varying versions of their credit scores. Additionally, personal credit is reported, while business credit isn’t.

How Do You Build Business Credit?

1. Incorporate Your Business Or Form a Limited Liability Company (LLC).

In order to build business credit, you need an incorporated business entity in order to separate personal from business transactions. In unincorporated business structures, the owner and the business are legally considered the same person. 

So, your SSN and your credit score are required when applying for credit. That means your personal credit file will contain all the business transactions and activities.

To separate your personal and business credit, you should register your business either as an C-corporation, S-corporation, LLP or LLC. If you don’t understand the various advantages and disadvantages of the business structures above, you can consult an accountant or a business attorney for help.

2. Obtain An Employer Identification Number (EIN)

As above mentioned, your SSN is used to identify you for legal reasons such as taxation. Your EIN has the same function for your business.

After choosing your preferred business structure, you need to apply for an EIN. However, if you prefer to be a sole proprietor, you can choose to use your SSN. However, unlike an EIN, that will not help you build the credit rating of your business. You can apply for it for free here.

Your SSN or EIN can be used to apply for business credit or a business credit card. Your EIN is more advisable since the goal here is to build business credit. However, you can use the SSN, in which case your credit score will determine whether you get the loan or not.

3. Open a Business Bank Account

A business bank account is an important component in separating your personal finances from your business finances. All incomes and expenses from the cell phone bill, to rent and other utilities of the business should be charged to this bank account. All the transactions and your usage will be in your credit report so if you pay most, if not all of them on time, your business credit will improve.

Additionally, a business account gives your business opportunities for better and cheaper credit accounts because most lenders prefer business accounts that have been active for at least a couple of years.

4. Open a Business Credit Card

A separate business credit card not only keeps the business running smoothly, but it also improves your business credit. Different credit card companies offer different packages with various features and options, so you need to do some research before deciding which packages suit your business best. 

However, in order to build your business credit, the company that you pick should report to all commercial credit reporting agencies. Nonetheless, you need to be cautious to avoid over-extending your finances. You should never use all the available credit in order to improve your business credit.

5. List Your Business With Google Places And Bing Places

Google Places and Bing Places are online services for business promotion. They improve your online visibility, increasing the chances of drawing people’s attention to your business.

Apart from improving your online visibility and enabling potential customers to see all the important information in one glance, listing with either service indicates business stability, which will improve your business credit.

If your business credit report shows that you have been at a single address for a while, the lender will be confident that you are reachable if the need arises. For example, they will know that they will find you in case there will be need for them to take you to court for missed payments. This information is more credible if you also appear on Google or Bing Places or on similar sites.

6. Pay On Time, All The Time

Your business card should be used responsibly. Most credit scoring models consider not only whether your credit card bills have been paid on time or not, but also how late or how early they were paid.  That said, your business credit score will be improved by early payments.

Why Should I Learn How To Establish Business Credit?

At this point, you may be wondering – what is the objective of the above discussion? How will it help you and your business? To answer this we are going to look at the various advantages that accrue a business with good credit.

  1. Higher chance (41% more likely) of being creditworthy.
  2. Access to cheaper loans.
  3. Better trade terms with vendors and other suppliers.
  4. There is no need to prepay for products and services.
  5. Your credit rating is protected from business transactions.

You need to learn to establish business credit in order to know beforehand what amount of credit you qualify for to prevent getting a lower amount(which is more common than you may think), or not getting it at all.

 The Bottom Line On Getting Business Credit

Getting business credit is not easy. Your business needs to have a high enough credit rating that takes a very long time to build. On top of that, there are many other factors that banks take into consideration. So, what steps are you going to take if your business has a poor rating and you need a loan immediately?

Well… If your business doesn’t qualify for a mainstream loan because of credit rating or other perquisites, contact us and we can custom-tailor something just for you.

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