Building business credit quickly is essential for new companies eager to secure funding, obtain favorable loan terms, or establish credibility with suppliers and partners. A strong business credit profile can unlock doors to growth opportunities and help separate your personal finances from your company’s. But where do you start, especially when your company is brand-new?
This guide will walk you through everything you need to know about business credit, explain why it matters, and provide actionable steps to build credit fast—even if you’re starting with no track record.
What Is Business Credit and Why Does It Matter?
At its core, business credit is a record of your company’s financial responsibility. It serves as a measure of your business’s creditworthiness, helping lenders, suppliers, and other partners assess the risk of extending credit or financing to your business.
Unlike personal credit, business credit is tied to your Employer Identification Number (EIN) instead of your Social Security number. This separation is crucial because it protects your personal finances and gives your business its own financial identity.
Why It Matters
- Access to Funding: Strong business credit increases your chances of qualifying for loans, credit lines, and leasing agreements.
- Better Terms: Companies with solid credit histories often receive lower interest rates and better repayment terms.
- Builds Credibility: Establishing business credit enhances your company’s reputation, making it attractive to potential partners and investors.
How to Separate Personal and Business Credit
One common mistake new business owners make is relying on personal credit for business expenses. This can lead to personal financial strain and high levels of risk. The first step in building business credit is creating a distinct financial profile for your company.
Key Steps to Separate Credit
- Register Your Business: Incorporate your business or set it up as an LLC to create a separate legal entity. This distinction is crucial for building a unique credit profile.
- Obtain an EIN: An EIN is like a Social Security number for your business. You’ll need it for tax purposes, opening business bank accounts, and applying for credit.
- Open a Business Bank Account: Deposit initial funds into your business account and use it for all business-related expenses to establish a clear financial trail.
Immediate Steps to Build Business Credit
Once your business has a legal identity and bank account, you’re ready to start building credit. Here are the first steps every entrepreneur should take:
1. Obtain a DUNS Number
A DUNS number is issued by Dun & Bradstreet, one of the top business credit bureaus. It’s essential for tracking your company’s credit history and applying for trade credit with suppliers. You can apply for a DUNS number for free through the Dun & Bradstreet website.
2. Establish Trade Credit with Suppliers
Trade credit allows you to purchase goods and services from suppliers with delayed payment terms, such as “net 30” or “net 60.” Over time, punctual payments will improve your credit profile. Make sure your suppliers report payments to business credit bureaus!
3. Open Business Credit Cards
Business credit cards are an excellent way to build credit quickly. Choose a card suited to your needs, such as one that offers cashback or rewards for business-related purchases. Be diligent about making payments on time and keeping your credit utilization low.
4. Report Rent and Utility Payments
Services like Creditsafe and Dun & Bradstreet’s CreditBuilder allow you to report rent, utility bills, and other recurring business expenses. These actions can help establish a positive payment history.
The Role of Business Credit Cards
Business credit cards are more than just a payment tool. They’re one of the fastest ways to build credit and manage cash flow for new businesses. However, choosing the right card and using it responsibly are key.
Tips for Using Credit Cards to Build Business Credit
- Start Small: Apply for a credit card that aligns with your current financial standing. Secured business credit cards are a good option if you’re just starting.
- Make Payments on Time: Payment history has a significant impact on your credit score, so always pay your credit card bills on time.
- Monitor Credit Utilization: Aim to keep your credit utilization ratio below 30%. This shows lenders that you manage credit responsibly.
Monitor Your Business Credit
Checking your business credit reports regularly is vital for tracking your progress, spotting errors, and staying informed. Set up alerts with major business credit bureaus like Dun & Bradstreet, Experian, and Equifax so you’re notified when any changes occur.
Alternative Funding Options for New Businesses
If your business is new or still building its credit, you may face challenges accessing traditional loans. Consider these alternative funding sources while your credit score improves:
- Microloans
Nonprofit organizations and community lenders provide small loans (typically under $50,000) for startups. Platforms like Kiva and Accion offer accessible microloan options.
- Crowdfunding
Crowdfunding platforms like Kickstarter and GoFundMe allow you to raise funds directly from supporters. Showcase how your business idea brings value to increase contributions.
- Invoice Financing
If you’re waiting on payments from clients, invoice financing can provide immediate cash flow. Companies like Fundbox and BlueVine can help.
Inspiring Case Studies of Success Without Money
Starting with little to no funding doesn’t mean success is out of reach. Here are five businesses that began with limited funds and achieved remarkable growth:
- Dell
Michael Dell launched his computer company from his college dorm room with just $1,000.
- Spanx
Sara Blakely built a billion-dollar hosiery empire with $5,000 in savings.
- Subway
Fred DeLuca started the sandwich chain with a $1,000 loan from a family friend.
- GitHub
Tom Preston-Werner bootstrapped GitHub, growing it into the top software development platform.
- GoPro
Nick Woodman funded the first GoPro camera by selling beaded belts and necklaces.
Why Building Business Credit is a Long-Term Strategy
Building business credit takes time, but the benefits are worth the effort. A strong credit profile not only empowers you to secure funding but also gives your business financial flexibility and stability as it grows. Remember, every step you take now contributes to your company’s long-term success.
Take action today by following the steps outlined, and watch your business credit take off!