If you are struggling with building business partnerships, getting business benefits, and poor credit history, then don’t fret. You are the most premium guide, which will lead you to maintain the credit record and let you know how you can build business credit for a small business. 

Regarding business expansion and investments, small business financing frequently mixes credit and private investments. Ensuring your credit record is in good standing should be a priority as you operate with the start-up spending and costs.  

So, let’s head to lead the way of strong business credits that add attractiveness to your business and establish the best possible insurance rates. 

A Step-by-Step Guide on How To Build Business Credit For Small Business

You must complete six (6) steps to build a solid business credit profile that separates your personal and business credit histories. But before diving into this, do you know what business credit is?

Business credits are an important method of finance that will assist your small businesses in getting approved for financial assistance and other funding. You can take it as a critical resource for establishing connections with suppliers and other B2B businesses that deal with sellers.  

So, let’s start with building the business credit model for your small business. Research the states to form C-corp, S-corp, and LLC before making the business credit for your company.

1. Establishing Business Credit

When you are heading to build the business credit, the first step is to get your company legally recognized. There are two parts you need to follow to get your company recognized. 

Register your Business

Generally, the company and its shareholders are legally the same in partnerships and corporations. But to start a business, legal recognition is a must, so your business and personal credits will remain separate. 

Whether you opt for an LLC or corporation, you need to entitle your business independently, which requires specific documents for registration.  

Obtaining an EIN

Getting an EIN (Employer Identification Number) or Federal Tax Identification Number is necessary for businesses. EIN is explicitly associated with businesses’ social security, as many large companies require EIN from vendors and suppliers to pay them for their services. 

Therefore, opening an account with a bank in a corporation like C-corp or S-corp, or in an LLC’s name, and on their federal tax applications, is necessary.

2. Opening Business Accounts

After legally recognizing your company, the next step is to make bank accounts for finance history and checks and balances. 

Business Bank Account

Opening a different bank account for your business on a legal business name is crucial. It promotes the upholding of the limits between private and business financial affairs. 

Once it’s opened, use that account to pay for all business expenses.

Trade Credit

Collaborate with numerous suppliers or vendors, at least five, to earn your business credit so that you can make subsequent deals with them. 

Tip: You can raise your company’s credit score by paying invoices promptly or on their valuable time.

3. Applying for Business Credit

Now that you have registered your company and built modules for financial transactions let’s move on to the application for credit cards.

Business Credit Cards

One popular strategy for establishing credit is to apply for a business card with a balance. So, get one credit card for your business that isn’t associated with you or any other company shareholders.

Select a credit card from a bank that submits information to credit organizations for business use. Responsibly usage of these cards will build a positive payment history.

Read our article on how to apply for ITIN to get the best possible funding opportunities.

Trade Business Number 

Establish a distinct telephone line for your business that can be registered under the official domain name of your company, whether you employ VoIP, a telephone line, or a mobile device. To make the telephone number visible, list it under the directories. You can also set a professional voicemail under a business name for a more refined and polished image.

4. Monitoring and Maintaining Business Credit

Monitoring and maintaining the business credit profile is the most important after establishing the whole system for the company.

Open Business Credit File 

You must establish the credit history with all three business reporting agencies in the business credit file. These agencies include Equifax, Experian, and TransUnion. 

The credit file will include your business’s credit and payment history, along with their financial behaviours. Keep the separate files under their respective names for prompt check and balance. 

Business Credit Scores

Different business agencies have various credit scoring models, which help evaluate a company’s reputation. These business credit scores are similar to your personal ones, so figuring out where you lack and raising through them will let your business lead. 

5. Improving Business Credit

Timely Payments

You must maintain timely payments if you want a positive business credit history. Consistent payment deadlines for loans, accounts, and other obligations are essential.

Late or missed payments seriously damage your business credit profile.

Correcting Errors

Examine your company’s credit standing regularly for errors of fact, and raise every mistake you find right away.

6. Access to Financing

While finalizing the business credit model for a small business, the last and most secure step is to check finance accessibility. This crucial check and balance will tell you where your company stands in the coming years and what model and plan you should adopt.

Business Loan Eligibility

A solid credit history for your company raises your probability of getting monetary support and funds on a favourable basis.

Better Business Credit Terms

When applying for investment, improved credit scores could culminate in improved conditions and lower monthly payments.

Why Maintain Good Business Credits?

Having solid business credit is more than just a luxury. You’ll need to rely on a solid track record of credit if you take part in any of the following activities

1. Get Funds Access

One easy way to get money for investing in your business is through business credit. Suppose your company has a clean and solid business credit record. In that case, obtaining investment through monetary agreements like a LOC for needs ranging from product innovation to business mergers will be simpler.

2. Protect Ownership

The legal status of your company remains intact when you raise money via business credit when searching for investors. You can expand your organization without transferring ownership. 

3. Protect Personal Credit

Solid credit affects your ability to obtain financial assistance, such as mortgage-backed securities. You can increase your security by keeping your private and company credit cards separate. 

Your company’s late or nonexistent loan repayment history will not negatively impact you if it has poor credit. 

4. Build Business Credit For The Future

There’s an opportunity that you might eventually require business credit despite not currently needing it to get financing. Over time, having a solid business credit account may improve your financing decisions.

Benefits of Having a Good Business Credit Score

Growing a business credit has several benefits for entrepreneurs. They can establish and enhance small business finance, leading them to healthy businesses.

• You can set up your business for more incredible benefits on payments from new contractors and suppliers.
• A good business credit will minimize the frequency of prepayment required for goods or services.
• It enables creditors and lenders to offer you more favourable credit conditions as well as interest rates.

There is potential for business credit lines to serve as an adaptable source of working capital and economic supervision.

Conclusion

Regarding funding options, startups who take the initiative to separate their personal and business credit early on will have the best chance of finding reasonable solutions when they need them most. 

Building an independent business credit history sets the way for future expansion prospects. Global businessmen aim to grow operations in the dynamic US market to gain a clear advantage by building solid business credit for small businesses by following these principles of credit differentiation and management.

FAQs

How does business credit work?

Dun & Bradstreet, Equifax, and Experian are the three major business credit agencies that rank firms and give credit ratings to establish their financial standing. These agencies use multiple factors to generate the business credit report, which lenders evaluate to determine the risk of financing it.

How many types of business credits are there?

There are multiple types of business credits, such as vendor, supplier, service, retail, and business credit cards.

Each business credit is used for specific purposes to enhance the business credit score and attract investors to your business. 

Why do we need to establish separate credit histories?

Establishing a business credit history separately from your private credit record can help minimize the impact of adverse events, whether your small business has its own entity and operates as an LLC or any corporation.

For example, suppose you have some personal financial errors impacting your credit history and score. In that case, they shouldn’t affect your small business credit if you have established a clear separation and vice versa.