10 Steps to Establish Credit for Your Business

Many new business owners need a bit of guidance on how to establish business credit the right way. They want their businesses to succeed from the start, and having good business credit is one way to do so. 

This article will explore the world of business credit, what it means, and how to establish business credit. 

What is Business Credit?

Business credit is separate from a business owner’s personal credit. It’s every new business’ lifeline and can help you borrow money to secure much-needed cash and services to help get your new venture off the ground. 

By building business credit, you create a business credit profile that credit grantors will use to determine whether or not they’ll extend your business a line of credit in the future. 

Don’t let the age of your business hold you back from building your business credit profile. Even startups in their early stages can benefit from getting a head start. Once you’ve established your business’ credit identity, you’ll find it much easier to obtain credit in the future. 

How to Establish Business Credit

Establishing business credit doesn’t have to be complicated. Although it may seem overwhelming at first, breaking it down into steps can make establishing business credit for the first time a breeze. 

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Steps to Establish Business Credit for the First Time

Step 1: Make your business official 

The first thing you want to do is make your business official. While you may feel that your business has already existed for a while, others don’t know that. Establish an official physical address for your business that isn’t a P.O box or virtual office location. 

Create a website for your business and official emails that include your business name. Of course, you’ll also want to put your business name and address on all important business documents right from the start. 

Step 2: Get an EIN

A federal employer identification number acts as a Social Security number for businesses. If you plan to incorporate your business, employ workers, or withhold taxes on wages, you’ll need to have an EIN. Getting one alerts lenders to your status as an actual business entity. The earlier you get one, the easier it’ll be to get approved for future lines of credit. 

Step 3: Open business bank accounts

Open a business bank account and use it to pay for all your business expenses. Since you don’t need revenue to open one, use the account to manage money and make life easier when tax season rolls around. Once you get your business credit card, you can use this account to pay for all business-related expenses. 

Step 4: Incorporate your business

You’ll want to separate your business credit score from your personal credit score early on. Once you form a corporation or LLC, you’ll protect your personal credit score and your assets from any financial mishaps. 

Step 5: Create a dedicated business phone line and make sure it’s listed

Get a phone number for your business and have it listed in the 411 directory and other locations. The more places people can find your business, the more official you seem to both potential customers and lenders.

Step 6: Build good vendor credit relationships

In the early stages of your business, you’ll find it easier to build credit through vendor credit relationships. Vendor credit is when an individual or business offers products or services to your company to purchase through short-term financing. 

Vendors offer financing through Net-30 accounts and report your credit history to business credit bureaus. If you’re unsure which vendors report to credit bureaus, you can ask them before opening a line of credit with their company. Ideally, you’ll want to work with vendors that report to Dun & Bradstreet, Experian, and Equifax

Step 7: Pay on time, every time

With Net-30 accounts, you must pay within 30 days of the invoice date. Try to pay all your invoices on time, and if possible, pay earlier than your due date. Although these lines of credit aren’t coming from traditional loans, they still contribute to your business credit. If you’re struggling to pay your bills on time, consider debt consolidation to avoid a late payment on your business record. If you are struggling to make your payments on time Melio Payments is a great tool to take care of that. 

Step 8: Get a business credit card

It’s common for small businesses in their early stages to use credit cards to finance their business. Getting a business credit card that reports to the major business credit agencies is one of the simplest ways to start building your business credit. To begin with, you can use the card for smaller, daily purchases that you can quickly pay off. The last thing you want is to be drowning in business debt before you’ve even begun. 

Step 9: Make sure your business and personal expenses are separate

If you’ve followed all the previous steps, you’ve probably separated your business and personal expenses once you incorporated your business. This step is one of the most important in your journey to becoming a thriving business. 

Once you open bank accounts, credit cards, and Net 30 accounts in your business’ name, you separate your business and personal accounts. When spending money on business expenses, you should only spend money from your business account. Then, you’ll have all your expenses and receipts in one place for easy retrieval if you get audited. 

Step 10: Monitor your business credit

Now that you’ve created business lines of credit, you need to monitor them regularly to stay in the good graces of your vendors and other lenders. Unfortunately, many small businesses will find errors in their credit reports. So keep a close eye on your credit reports and check them often. If there’s ever an error, quickly file a dispute with your reporting agency. 

3 Tips for Building Business Credit

The following tips are three simple ways to build up your business credit after you’ve established it: 

  • Get A Business Credit Card: Building strong business credit starts with getting a business credit card. First, however, make sure that your business credit company reports to the leading business credit agencies to have accounts that directly affect your credit scores. 
  • Pay Vendors Early: Do your best to pay back vendors early. While most vendors give you 30 days to pay back the money on your accounts, aim to make payments around the 15 - 20 day mark. Paying vendors early builds up a sense of trust and fosters a positive repayment history as well. 
  • Work With Vendors Who Report Payments: To get rewarded for your timely payments, work with vendors who report payments to credit bureaus. While most banks and traditional lenders automatically report payments to bureaus, some online lenders do not. So before applying for lines of credit, research their policiesIf your Vendor doesn't report payments, check out our guide, How to Self-Report Your Business Tradelines & Build Credit, to learn how you can!

Why Is Establishing and Building Business Credit Important?

Establishing and building business credit is crucial to the success of your business. Good business credit comes in handy when applying for future business loans. Before extending your lines of credit, lenders will perform a business score credit check. A good business credit score shows lenders that you borrow and pay back loans responsibly, making it easier for you to get financing for your business. 

In addition, establishing a separate business credit score protects your personal credit score. You’ll be making large purchases with your business lines of credit, and putting these purchases on your personal card could negatively impact your personal credit. 

When Should New Businesses Begin Establishing and Monitoring Their Business Credit?

New businesses should establish and monitor their business credit as soon as possible. Even if you don’t qualify for other terms of credit, start working with local vendors to build up a credit history with them. Many of these vendors report payments to business credit reporting agencies. If they do, you can build up your credit with them and then move on to bigger businesses later. Bench can help you track your expenses and walk you through your business finance options.  

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