How to get Small Business Credit

When you’re a first-time business owner, there’s already a lot that’s on your mind. Establishing and building business credit is probably not a top priority. In the future when you’re planning to grow your business, having business credit will become very important. That’s why setting yourself up with a strong business credit profile early on is helpful. 

What is Business Credit?

You’re probably already familiar with personal credit scores and how lenders use them to make decisions about whether to loan you money and at what interest rate. Business credit works in a similar fashion, except it qualifies businesses for financing. Yes, that means credit reports and credit scores are for businesses too.

Business credit bureaus create credit reports for businesses . The three major business credit reporting agencies are Dun & Bradstreet, Experian Business, and Equifax Small Business. Experian and Equifax also manage consumer credit reporting, but those are held separately from your business credit files. 

Business credit reports aren’t legally required to be accessible to businesses by the bureaus like personal credit reports are. You can request access to your business credit report for a fee. Another difference between business credit reports and personal credit reports is that as a business you have no right to privacy. That means that a business credit bureau is legally able to sell your information to whomever will pay for it. 

Information that’s gathered by these business credit bureaus include:

  • Print Directories such as the Yellow Pages
  • Data Furnishers including suppliers, creditors, etc.
  • Public Records sources like liens, judgements, bankruptcies, incorporations
  • Self-Reported Data 
  • Internet Web Mining
  • Press Releases and News/Media stories
  • Corporate Financial Repots
  • UCC filings
  • State, City, and County Business Registrations
  • Federal Government contracts, grants, loans, and debarments

Business credit scores are similarly much like personal credit scores. You can have more than one credit score including from places like FICO LiquidCredit Small Business Scoring Service, Intelliscore PlusSM, and PayDEX Score. 

The scoring models that are used to create business credit scores are different than what’s used in consumer credit scoring models. So you can have a great personal credit score, but that doesn’t mean you get an excellent business credit score doing the same things. 

Why is it Important to Build Business Credit?

It takes time to build credit score, so starting to work on it when you first open your business is ideal. Business credit may give you access to more capital that you will need to grow your business in the future.

 Similar to your personal credit, having a strong business credit profit will improve your chances of being approved for a loan and eligibility for lower interest rates.

Low insurance premiums, approval for a lease, better terms from vendors and approval for a business line of credit are among the other benefits. 

It’s possible that you have encountered why business credit is so important during the process of starting your business. When taking out a business loan or opening a business credit card, it is often required that you sign a personal guarantee. A personal guarantee will hold you personally liable for the debt in the event that the business can’t repay it. After establishing business credit, you could qualify for a business loan or credit card without it being necessary to put your personal finances at risk. 

How do you Establish Business Credit?

There are many ways to start establishing business credit for your company. Here’s some steps you can follow as a roadmap to your goal below. 

1. Get your Business Recognized as a Business

Opening up your business doesn’t necessarily equal having an established business. Have your business set up as a LLC (limited liability company) or incorporate your business. Get a federal employer identification number. You can apply for an EIN on the IRS’s website. 

Set up a business phone number and make sure that it’s listed. Be sure to open up a business bank account that has your legal business name and used regularly for operating your business. 

To start establishing business credit, you also need to open a business credit file with Dun & Bradstreet. You can apply for a free D-U-N-S number or check on Dun & Bradstreet’s website to see if your business has one. For Experian and Equifax, you simply need to open a business credit account to establish a business credit file. 

2. Have Good Credit Relationships

Your vendors and suppliers are very important relationships in the business arena. Great relationships lead to better terms such as not having to pay for goods or services up-front. Securing a line of credit or payment terms (net-30, net-60, etc.) with a couple of vendors and suppliers that report payments to the business credit reporting agencies will help you maintain a great history of business credit credit. 

3. Pay all your Bills on Time

This principle is the most important factor in every credit scenario because it shows that you can be counted on to pay and manage your debt. Lenders look at your payment history as an indicator of how likely it is that you will repay your loan with them. A history of late payments can lower your business credit rating and business credit profile, making it very difficult to find lenders willing to work with you. 

4. Apply for a Business Credit Card

A great way to start establishing business credit is to open a business credit card. Ideally the creditor will report to the three major business credit reporting agencies. Start by opening up at least one business card and managing it effectively. Having more than one business card can be helpful, but only after you have been using the one responsibly. 

Building Business Credit

After establishing business credit, its time to start building upon that foundation so that you have strong business credit. If you’re following the guidance above, you’ll be in a great place to building that strong credit profile. But let’s take it a step further.

There’s three things that you should focus on once you’ve established business credit. First, start paying your bills early. You may be able to score some “extra points” with some business credit scores by doing this. Another step you  should take is to find out if your accounts are reporting to the business credit agency. Not every vendor does this so you might consider adding other credit references that do. Last, try to keep your credit utilization under 30% of your total available credit. This is particularly important if you’re seeking more financing.

How to get Small Business Credit was last updated June 21st, 2022 by Marc