How To Build Business Credit Step by Step

Dear Reader,

If you are already in business, or you are planning to start one, you most likely know the importance of having adequate funds for the success of a business.

Many small businesses fail due to lack of adequate capital to operate or expand their business.
Without proper funding businesses can’t take advantage of opportunities, can’t execute sufficient marketing to sustain and grow the business, and have difficulty with keeping up with operating expenses.

But building business credit can offer a business a viable way to gradually get the funds they need to survive and expand.

As pointed out in the Introduction to Credit page, building credit requires disciplined steps done properly over time. That applies to both Personal Credit as well as building Business Credit.

The key is to gradually build your Business Credit based on your business Entity, as separate from your Personal Credit. Once setup properly, this will allow for applying and obtaining Credit based strictly on your business without having to Personally Guarantee the loan or credit obtained.
By following the proper sequence of steps, your business can be considered a separate entity from you personally, and that’s how you can have the business itself apply and obtain credit without personal guarantees.

However, initially some lenders may require you to sign personally. While first establishing business credit, this may be necessary in order to build several accounts and then show a steady payment history. Then it will become easier to obtain credit without personal guarantees.

There are a large number of small businesses and entrepreneurs that have not established a separate Business Credit profile, and use mainly their Personal Credit for loans and financing, which is limited in its capacity for how much can be borrowed, and exposes the Owner to more liability.

Before applying for credit to various merchants, banks, and lenders, there are a number of steps needed to build the proper foundation to begin building your Credit Profile.

Here is a summary of the main steps needed, then below there is a resource link for more advanced and detailed training available to build a solid and substantial business credit profile.

    1. Establish a Business Entity
      • If you already have a corporation or an LLC then go to step 2.
      • If you have not established a business entity yet, you’ll need to register and form one. Go to our page on Business Resources for help in forming your Corporation or LLC inexpensively.
    2. Obtain an EIN Tax number
      • If you have an established entity, you may already have and EIN number.
      • If not, or if you just established your business entity, you’ll need to get a number for your business from the IRS.
    3. Business Address 
      • You will need to establish an accepted business address to Lenders.
      • If you have a retail location, or an actual office, then that is your business address.
      • But if you are a small business or entreprenuer running the business from your home office, you’ll need to get a separate business address. Post Office boxes will not be good for this, it’s better to get a Virtual Office address from an Office Building that offers this type of service. You can search online for services in your area.
    4. Dedicated Business Phone Number
      • It’s best to get a dedicated number, rather than a cell phone number. Some internet services offer this type of number for your area.
      • You’ll then need to Register the number with the 411 Directory, as potential lenders will check with the directory.
    5. Business Bank Account
      • A business bank account is very important. It shows Lenders the time your business actually started doing transactions.
      • The bank account will also be a way for Lenders to verify your Business Monthly Income.
    6. Website and Email address 
      • Nowadays it’s expected that businesses have a website. If you are just starting out you can find many easy options by searching online.
      • Potential Lenders may also look at this to get a better idea about your business.
    7. Register with the 3 Main Business Credit Bureaus
      • Dun & Bradstreet – Register for a DNB number
      • Experian Business Credit
      • Equifax Business Credit
    8. Start with an Easy Credit Card tied to Your Business 
      • Capital One offers a good option to start building your business credit with the Sparks Business Card.  This card will be both in your Personal name as well as your Business Name. After you get the card and have established accounts with the Bureaus, you can contact Capital One to start reporting to your Business accounts as well as your personal.
      • This is to get you started – later you can go for Credit Cards strictly in your business name.
    9. Build some Credit, then Apply for More Merchant Credit Accounts 
      • You’ll need to find some Merchants that report to one or more of the Business Bureaus.
      • Open an account and start making small purchases on credit.
      • Then pay each account in full early before the due date. Make sure they report your timely payments to the Bureaus.
    10. Build Track Record 
      • After you have made payments and built a track record for a few months, then you can start applying for next level of Credit.
      • After a few months you will have established a history of payments with the Bureaus, as well as have built a Credit Score with them.
      • This will enable you to start applying for more business credit, such as Bank Credit Cards, and higher Merchant accounts.
      • With time you will gradually qualify for larger credit amounts and different types of credit such as business loans, equipment financing, and more.

Building business credit, just like personal credit, takes time and discipline to establish a strong timely payments history. These efforts will pay off in the long-term, so it’s very worthwhile to build a strong credit for your business.

Best wishes for your success!

 

This content is expressed as opinion by the publisher and is not meant as legal advice.
For legal matters please consult with an attorney.

Business Credit Building System Step By Step
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