The Essential Steps for Building Business Credit

The Credit Review

June 6, 2023 Business Banking

The Essential Steps for Building Business Credit

Are you looking to build more credit for your business, but have no idea where to start? You’re in the right place!

Building business credit is a worthwhile endeavor, as it can give a business the flexibility it needs to get ahead. When you have good business credit, you can more easily obtain loans, and secure better interest rates when you need to borrow money. Additionally, having a solid business credit history provides additional credibility to companies and increases trust amongst investors and potential partners. Despite the time investment required in building creditworthiness for your business, over time the return on your effort will pay off significantly with access to better financing opportunities and improved relationships with creditors.

But when your business is not within good standing, then you are at risk of getting higher interest rates for loans and accounts, not getting approved by lenders for much-needed capital and potentially slowing down your progress toward your goals and dreams. That’s certainly not what you want!

As you can see, making sure you build good credit for your business is an excellent way to give yourself a leg up for your future and beyond!

Ready to get started?

Follow these key steps to start building your business credit:

Request Your Vendors To Report your Payment History to Dun & Bradstreet

Requesting vendors to report your payment details to Dun & Bradstreet is a great way to build your business credit. Doing so will give creditors the confidence to do business with you, as they will be able to make informed decisions based on their review of your payment history. Plus, it's easy for lenders and suppliers to access reliable data about you on the D&B registry system. By simply supplying clear and accurate information about how much and when you paid for goods/services, your potential business partners gain peace of mind in working with you. So don't delay in requesting that vendors share this important financial account with Dun & Bradstreet.

Apply for Your EIN

Obtaining an Employer Identification Number (EIN) is the first step in building credit. An EIN serves as a unique identification number for your company and can provide valuable access to loans and lines of credit. Applying for an EIN may be done online through the IRS website, or by mail if you prefer a more traditional approach. It's important to safeguard your EIN, as it can potentially be used by someone else to open a line of credit without your knowledge. To ensure secure and authentic access to financial services, having an up-to-date EIN assigned to your company is essential.

Register For a DUNS Number

While obtaining a Data Universal Numbering System (DUNS) number may seem daunting, it is actually a straightforward process. DUNS numbers are issued by Dun & Bradstreet (D&B), and provide private companies with access to their database of businesses. This in turn allows lenders and creditors to gain visibility into an organization's financial health prior to granting credit or issuing a loan, giving them critical insight into the company’s ability to repay debt. Companies can apply for a DUNS number quickly and easily online through the D&B website or by phone, without the need for lengthy paperwork and bureaucracy. Therefore, having access to this powerful business tool should be part of any successful credit-building strategy.

Open A Business Credit Card

Using a business credit card is an effective tool in building your business’s credit profile. Keeping up with timely payments, not just on the card but of any debt your business incurs, will create a positive payment history that potential lenders and creditors review in order to assess if they should offer new lines of credit or loans. Promote responsible usage as this can have a constructive effect on any amount of debt held. When deciding which type of card to use, it is important to know that only cards designated as “business cards” have the ability to appear on Experian and Equifax Business Credit Reports™. While personal cards may influence spending practices, they do not reflect on the reporting from commercial bureaus such as those mentioned.

Start A Bank Account For Your Business

By selecting a reputable financial institution, entrepreneurs can manage their business expenses and set up direct deposits for themselves, employees, and vendors. Furthermore, having a dedicated business account establishes credibility with customers and merchants, giving businesses the opportunity to apply for lines of credit that can be used for investment opportunities. Good money management is the foundation of any successful company and maintaining an organized banking history is essential for even smaller operations. Exploring the best options available on the market will ensure businesses have access to the funds needed to grow and sustain themselves in the long run.

Incorporate Your Business

Incorporation is an important step for businesses seeking to reduce risk and gain access to more funding sources. As a corporation, a business can access limited liability protection that an unincorporated company could not. This means shareholders will not be held personally responsible for any missteps the company may take in the future. Furthermore, owing to its legal entity status, it will have greater capability to tap into larger streams of venture capital initially reserved for corporates; from traditional equity financing rounds to debt financing and private investments from angel investors. Thus, incorporating offers both practical and legal advantages that result in reduced risks and more lucrative opportunities for small businesses.

Create trade credit lines with your vendors

Investing in healthy trade credit lines with your vendors can be a worthy asset to the success of any business. Take into consideration long payment terms for necessary products and services, as well as early-payment discounts. This could open space up for potential investment opportunities. Consider setting limits to maintain cash flow and negotiating disputes before they become detrimental to future relationships. Furthermore, keeping accurate records of all transactions goes without question to ensure financial responsibility and accuracy within the credit line process. With tight management and an understanding of risk vs reward, creating successful trade credit lines benefits both you and your vendors in the long run.

Pay creditors (the sooner, the better)

When it comes to your business, maintaining a good relationship with creditors is essential. Paying them promptly and dependably can help you to build a strong credit history that reflects positively on your business. The sooner you can pay off any loans or invoices, the better – so make sure you plan ahead and leave yourself plenty of time to deliver payments on time. Having a consistent track record of paying creditors quickly and adequately will go a long way in helping you to build a solid foundation of business credit.

Keep your information current with all three credit bureaus

It is important to keep your information current with all three major credit bureaus (Equifax, Experian and TransUnion) for several reasons. First, maintaining an accurate and up-to-date credit report shows lenders and other creditors that you are dependable and responsible when it comes to financials. Additionally, if there is ever a discrepancy on your report, you can dispute it and have it fixed, thus protecting your credit score from any potential damage. Furthermore, tracking all three of your reports will help you build business credit so that you may be eligible for loans or other financing. Taking control of your own credit situation is beneficial in many different ways: saving time, energy and potentially money! Make sure to stay on top of it early on and move confidently forward into the future.

Avoid delinquencies, liens and bankruptcies

When developing business credit, it’s important to avoid delinquencies, liens and bankruptcies as much as possible as these could prevent businesses from getting additional financing when needed. Business owners can use techniques such as incorporating separate bank accounts for ongoing expenses and managing monthly budgets wisely in order to ensure good standing with creditors. There are also resources like Experian Business CreditEdgeSM for ReliaMax customers which make it simple to manage your personal and business credit score in one place.

Monitor your credit on a regular basis

Monitoring your credit on a regular basis is one of the most important steps to take when building business credit. It's essential to know where you stand and to keep track of changes that may be occurring over time. Regularly checking your three-bureau credit score will give you an overview of the progress being made in strengthening your financial position. Additionally, monitoring periodic reports from business loan providers and creditors can provide further insight into current credit trends. Being informed and proactive ensures that you're empowered to make responsible and informed decisions about business lending opportunities, ensuring that you'll have the resources and terms necessary for long-term success.

Use loans that report to all 3 credit bureaus

Building business credit is an important part of establishing stability and credibility in any organization. One way to do this is by taking out loans that are reported to credit bureaus such as Experian, TransUnion, and Equifax. Doing so will help build strong business credit that can be used for things like obtaining financing for future endeavors and increase your chances for loan approvals. It also helps with developing reputation among suppliers, customers, insurers, and other organizations when it comes time to request services or make transactions. Taking the time to establish solid business credit is an investment in the long-term growth of your company.

How long will it take to build credit?

Building business credit takes time, but it is an essential part of establishing a successful enterprise that can access funding options. The amount of time varies depending on the type of business and its credit history, but in general it can take anywhere from 6 months to 2 years to establish a strong business credit score. What you need to focus on the most is consistency. As long as you follow all of the steps outlined above, pay everyone on time, and stay in good standing then you will be on your way to good credit in no time!

As you can see, building strong business credit takes hard work, dedication and consistency over time but it has many long-term benefits that make it worth pursuing if you want access to more funding opportunities, better terms on loans/credit cards, and have more and better options to finance your dreams. Don’t wait to get started. Start taking one baby step at a time. Before you know it, you’ll be walking miles down from where you began!

With these simple steps outlined above, you should have no problem getting started on building up your company's reputation—and ultimately its bottom line! Ready to get started? Visit our website today for more information about how we can help!