How Do I Establish Business Credit for the First Time?

Entrepreneurs face tremendous challenges when attempting to start a new business. Many run out of steam, and capital, before reaching their fifth anniversary. 

According to statistics released in 2018 by the Small Business Administration (SBA), only about 50% of new companies survive beyond five years. A well-thought-out strategy and access to working capital are vital to helping your fledgling business beat those odds. 

Banks are hesitant to lend money to new business owners that have yet to prove themselves; therefore, it is crucial to establish business credit as soon as possible. Building a dependable credit profile empowers your firm to acquire the financing you’ll need to grow and thrive.

9 Steps to Building Business Credit

When you form your company, lenders typically use your personal credit to qualify you and your firm for loans and credit cards. However, this can expose you to risk, especially if you must use your personal assets as collateral. 

A better solution is to establish a business credit profile for your new company by following these nine steps: 

1. Set Up a Separate Legal Entity

Specific business structures do not offer much of a separation between you and your company. If you are set up as a sole proprietorship or general partnership, for example, lenders will typically link your business finances with your consumer credit.

Instead, you may want to consider one of the following corporate entities:

  • Limited liability company (LLC) — LLC profits and losses can be listed on your personal taxes rather than with a separate business filing. However, you are not held personally liable for your company debts.
  • Limited liability partnership (LLP) — Some professionals use LLPs to set up a corporation partnership, spreading the risk among members while shielding personal assets.
  • C-corporation (C-corp) — Ideal for large businesses that plan to go public, a C-corp is an entirely separate entity with its own tax filings.
  • S-corporation (S-corp) — Each member’s share of the business profits pass through their individual taxes, but they also maintain limited personal liability for business debts.

2. Obtain an Employer Identification Number

Visit the IRS website to request your Employer Identification Number (EIN). The IRS uses this unique tax ID to identify your business. 

You will use an EIN when you are filing your taxes and annual reports. Lenders and credit card issuers will also require it as part of your application. 

3. Get a Dedicated Company Phone Number and Address

Setting up a different business phone number and address serves multiple purposes:

  • It further separates you from your business entity.
  • It allows you to register with directories like the Better Business Bureau and Angie’s List. These directories then share your information with credit reporting agencies.
  • It gives your business its first trade credit relationship with the phone company that also reports your timely payments to credit reporting agencies.

4. Open a Business Checking Account

Establish separate finances by opening bank accounts in the name of your business. Use these accounts for your company-related transactions so that the credit reporting agencies can easily see your cash flow and accurately report revenue on your credit report.

5. Create a DUNS Number

You can acquire a D-U-N-S number from Dun and Bradstreet, one of the three business credit bureaus. 

This free numerical identifier is a nine-digit number that lenders use to access standardized financial information about your company.

6. Apply for a Business Credit Card

Opening your first business credit card or bank line of credit without credit history or significant assets to use as collateral can be nearly impossible. To bridge the gap until your credit is established, start with an account secured by one of the following:

  • A personal guarantee — You agree to pay the business debts with private funds if your company’s income does not cover the payment.
  • A cash deposit — Secured credit cards require your business to deposit funds with the card issuer equal to the amount of your credit limit. This is intended to offset any potential risk to the lender. Using the card wisely and paying it off each month, your company can demonstrate fiscal responsibility and creditworthiness.

7. Open Trade Lines with Your Vendors

Work with suppliers and other vendors that are willing to extend trade credit. Using credit in this manner improves your cash flow and demonstrates your ability to pay your debts. 

Ask your creditors to submit information to the credit reporting agencies so your on-time payments will strengthen your business credit report.

8. Make All Payments On Time or Early

Nothing sinks your company’s credit score faster than falling behind on the bills. Even paying your debts right on their due date will only get you so far — to achieve a perfect business credit score, aim for making your payments a month ahead of time.

9. Monitor Your Reports and Keep Them Up to Date

Credit reporting agencies allow you to edit and add essential information about your business, including your address, number of employees, and current financials. 

The more complete each of your three profiles can be, the better. Therefore, take the time to review all of your reports and correct errors as soon as possible.


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