A Small Business Owner’s Guide to Building Business Credit: The Building Blocks for Success
by Arnab Dey Small Business 26 January 2022
Building business credit is a crucial step for every fledgling small business owner. In fact, any business owner aiming to grow their business should make building solid credit one of their top priorities.
A business can enjoy several benefits with strong business credit, including quick and easy access to funds at competitive interest rates.
With providers such as Divvy (https://getdivvy.com/), you can learn how to build credit for your small business, obtain corporate credit cards, and other vital information to put you on the path to success.
Steps to follow in building business credit
Like consumer credit, business credit is a metric of your reliability and financial health over time. Here are the critical steps to send your credit lines through the roof.
1. Set up your business properly
The first step to establishing business credit is to set up your business well. It’s the foundation for successful business credit-building and ultimately making your small business better.
Ensure you register the business as a formal entity (a corporation or LLC). If you’re a sole proprietor, the fact that your personal and business income are intertwined means you cannot build credit effectively.
You also need at least one corporate credit card that doesn’t link to you or any other business partner personally. Ensure you solicit the card from a reputable corporate credit company that reports to credit reporting companies.
Also, ensure the corporate card program scales with you. Don’t just focus on rewards but on the issuer’s help to help manage that card.
2. Obtain an EIN
You must also have a federal tax identification number (EIN), a business’s social security number required for federal tax filings. The EIN is also required when opening a business bank account in the LLC or corporation’s name.
3. Open a business bank account
Now that you have a legal business name, it’s time to open a business checking account. You’ll be using this account to conduct any business transactions. If you use a business credit card, ensure to pay the credit card bill from this business checking account.
4. Acquire a business phone number
The next step is to acquire a different number from all your other cell phones, VoIP, or landlines. This number should be under your legal business name and used solely for business purposes. It should also be in local listings so that people can find it.
5. Open a business credit file
There are three reporting agencies with which every new business should open a business credit file—TransUnion, Experian, and Equifax. These will help build your credit history and generate credit scores anytime you need them.
6. Establish a line of credit with suppliers or vendors
It’s advisable to work with multiple vendors—at least five to start. These vendors will help you build credit your firm can use when buying with them. Remember to request that your vendor contacts report all your payments to the relevant credit agencies.
6. Pay your bills timely
Lastly, it shouldn’t be left unsaid that you need to pay your bills on time. Business credit is no different from personal credit in this regard. Late payments will impact your business credit negatively and incur steep interest charges.
Building business credit for your small business is easy, provided you follow the proper steps. Good business credit will bring you numerous benefits. Once you have established that good credit, ensure you monitor and safeguard it the same way you do with your personal credit. After that, you will be on the right path towards creating a solid brand identity for your small business.