How to Build Business Credit

Basics on How to Build Business Credit

A business has its own credit profile just like a consumer does, and you build business credit that same way as well. The better credit you have, the larger the credit limit available. Business credit is in the business’s name and has no responsibility placed on the business owner’s ability to pay the bills, just the business itself. A business qualifies for its own credit without personal credit checks on the business owner. This credit can be used to qualify for business lines of credit, business loans, business revolving store credit cards, and other forms of business credit.

Business Credit Benefits

The business credit score is based solely on whether the bill is paid on time or not, and other factors. In many instances, paying the bills on time builds business credit faster than they could with personal accounts. Business credit can and should be built without any linking to your personal accounts, thus removing the chances of creditors being able to steal personal assets if something goes wrong. A business owner will be denied financing if they have no business credit, and most never know why they were denied. Why? Because there is no obligation to disclose that information.

Business Credit Building

Business credit starts with without a credit profile. As the business gets approved for new credit, it gets reported to credit reporting agencies. To qualify for more credit, a business must keep using the available business credit and pay bills on time in order to qualify for more credit, or better terms.

Build Business Credibility

Perception of your business by credit providers is important for getting strong business credit. Before you apply for business credit, make sure your business meets or exceeds credibility standards. There are over 20 credibility standards that are important to be credible in the eyes of credit providers. The age of the company, or time-in-business, is one of those important factors.

Business Name

Be sure to use your exact business name on every business loan application. This needs to include any Fictitious Name Registration/DBA filing. Be sure to check the business name is the same on your corporation papers, licenses, and bank statements. Consistency is key.

Corporate Entities

You can build business credit with almost any corporate entity type. Separate your business credit from your personal credit unless a personal guarantee is absolutely necessary. Make your business a separate legal entity or else it is not a true business. You will need a corporation or an LLC to separate personal from business.

Company EIN

Your business must have a Federal tax identification number, or EIN number. An EIN is used to open your business bank account and build your business’s credit profile. You should verify all agencies, banks, and trade credit vendors all have your business listed with the same EIN.

Business Address

To have a true business address, the address must be a real building with a deliverable address. The address cannot be a PO box, UPS address, or home address. Some creditors will not approve your funds unless this criterion is met. You could have an alternative such as an Address only, a True Office, or a Virtual Office.

Business Phone Number

Your business’s number must be registered with 411 directory assistance. This number cannot be a cell number or a home phone number, and it must be under the business’s name. A toll-free number would give your business credibility but then you must have a local number registered with 411 as well. Any virtual phone number can be forwarded to any cell or home phone. Access ListYourself.net to register with 411.

Business Fax Number

Your business must have a fax number. Efax is a good option.

Business Website

Business credit providers will verify the information about your company, so you should have a website with all your company’s information. That information should be consistent with the information available on public records. If you do not have a company website, get one ASAP. The chances of obtaining business credit without a website is slim to none. There are many online services and businesses that offer affordable websites that you could use for your company’s domain.

Business Email

You need to have a company email address. This makes the company look professional and that improves your chances at getting credit. It is easy and cheap to set up a business email, but never use free email services to set one up. This makes your company look irresponsible and reflects poorly on the owner. You want the email address to end with “@yourcompany.com.”

Bank Account

You company’s banking history is vital to getting larger business loans. The incorporation date and the date you opened your business’s bank account are significant. Expect to open two or more accounts. When you obtain a business loan, the lender will invite you to open an account with their financial institution. Keep a higher balance when possible. This increases your bank rating, which then increases your credibility in the eyes of creditors. To maximize your bank rating, keep a minimum $10,000 in the business account.

Business Licensing

A common mistake people make when building credit for their company is not matching the business addresses on their business licenses. Others miss on filing the business licenses required to make their company legal. Be certain to properly register all business licenses as required on the State, County, and City level. All the business licenses and state records must record the same information accurately. Make sure all your State business filings, IRS filings, and your Country and City licenses and permits are listed correctly.

Generally, the company should be filed in the state where you seek to do business. In most cases, it is the same state as your driver’s license.

The best shelf companies are filed in just a few states, such as Montana or New Mexico. File the company into your state as a foreign entity and then file for those business licenses.

Business Listings

Take the time to verify that every main agency and every bill you receive has your business listed with the correct name. It should be the legal name of your company on each one.

Obtain Business Credit Reports

Business credit reports are offered by Experian, Dun and Bradstreet, and Equifax.

Start With Business Vendor Accounts To Build Business Credit

A credit report can be started the same way you did with your personal accounts, using small business credit cards known as “vendor credit.” Start here to obtain business credit.

Vendor Accounts

A vendor credit line is what’s known as when a company extends a small line of credit to your business. They come in net 15, net 30, net 60, and net 90 day periods, in which you have that allotted time to pay the bill in full. Buy what’s needed for your business, and pay it off ASAP. Accounts will differ within that 15-90 days to pay them off. Always apply first without using your SSN. No matter how much they say you need it, or insist you use it, submit the application without using your SSN first always. With your first net 30 report, your credit report file activates automatically whether it was before or not. Most vendors do not send credit reports out to the report providers, so you will need to request that, and it will take about 3 net cycles to build a credit score.

Then Build Revolving Accounts

To obtain a revolving account, you will first need at least five vendor accounts. You can use these accounts to pay for your vendor accounts, although you are not required to do so. Once you have ten (10) or more credits on your account, and have had them for about six months, apply for business credit cards such as Visa or MasterCard. Approval amounts for business revolving accounts will match that of your highest credit limit. Keep using these accounts to build up higher business credit to further your business goals.

The Stage is the Business Loan from the Bank

The bank loan is usually the last stage. Don’t’ rush it. You must build the business credit profile before approaching the bank. Most bank loans are rejected because busines owners neglect to build the credit profile before taking this step. Think ahead and make it happen for yourself.