How to Get Business Credit

As you foster growth in your business, you’re going to want as many resources at your disposal as possible. But if you don’t pay attention to building business credit early on, you might find yourself struggling to attract investors or secure the financing you need to fulfill your company’s potential.

Too many professionals are so focused on how to execute and market their businesses that they tend to overlook the critical role their company’s financial profile has on their long-term prospects. But this doesn’t have to be your fate. Determining how to get business credit is as easy as doing a bit of research and forming a strategy that fits your business. To help you get started, let’s first discuss business credit in a bit more detail. Then we’ll note some key questions you should ask yourself as you attempt to build your business credit.

Breaking Down Business Credit

On the whole, business credit isn’t really that dissimilar from your personal credit. An individual’s financial activity affects their credit rating, and a business earns a credit score in much the same way. But the credit bureaus that keep track of your business credit are not necessarily the same ones that record your personal credit score, and the scores work differently. For a business, your goal should be to secure at least a 75 or higher (the scale runs from 1 to 100) to maintain a stable financial standing.

Financial institutions and other businesses can actually view this score for themselves, and an unimpressive credit rating could adversely affect your business in a variety of ways. For instance, banks will be far less likely to grant you loans and/or credit lines, since they may assume you’re less reliable as a debtor. Even if they do allow you to borrow from them, you might be facing higher-than-normal interest rates or other undesirable terms.

The same scenario also applies to vendor trade accounts and insurance plans. Failing to establish solid business credit can be a ripple that causes your expenses to skyrocket and your investment prospects to dip. Not focusing on business credit can effectively discount all the hard work you’ve done building your company while severely limiting your potential to expand going forward.

If you hope to scale your business, you’ll need the flexibility and reliability that accompanies a positive business credit rating. Remember that any potential business partner or client can easily access your business credit, and earning a reputation of financial instability can cripple your business (especially early on). Essentially, your business credit score is a way for organizations that may be considering working with you to assess the level of risk they may be taking on. No one wants to enter into business with a company that has a troubled past and might fail to uphold their end of the bargain.

Getting Business Credit: What You Need to Ask Yourself

Of course, educating yourself about business credit and its bearing on your company is only the first step. If you want to truly become a business that others hope to work with, you’ll need to evaluate your practices and take action as soon as possible. Here are some basic questions you can start with:

Do I Have My Business Set up as a Separate Legal Entity?

One of the first things you should do when trying to establish your business credit is ensure a clear separation between your personal accounts and your business ones. Determine which type of legal entity best suits your business (such as an LLC, sole proprietorship or S Corporation), and file the necessary paperwork to make it official.

A logical extension of this separation is getting an employer identification number (EIN) for tax purposes. This number is how the Internal Revenue Service keeps track of your company — like the professional alternative to your social security number. Once you have an EIN, be sure to create a business checking account so you can keep your finances separate as well. This helps ensure your separate legal entity will hold up in court (if you ever need it to).

What Kind of Borrower Am I?

The behavior you demonstrate as a debtor makes a tremendous impact on your business credit. So if you’re hoping to boost your credit rating, you need to make an effort to be a model borrower. Making payments on your business credit card either on time or ahead of schedule is one of the most effective ways to build stellar business credit fast — and it keeps your business operating independently from your personal accounts.

Likewise, you don’t want to max out all of your credit lines, as this can undermine the strength you’re building with all your timely payments. Aim to use less than 30 percent of your available credit for each account to maintain an attractive credit history.

Am I Using Business Credit Strategically?

In addition to demonstrating good debtor behavior, you can implement a bit of creative strategy to maximize your business credit. Establishing credit lines with vendors and suppliers you currently work with is a smart way to extend your payment time and build credit by leveraging relationships you already have in place.

Using business credit cards also allows for the spending flexibility that’s often necessary for growing businesses. The objective here is to confirm that every step you take to build your business credit — including small business loans — contributes positively to your credit score.

Am I Staying on Top of My Business Credit?

Even if you’re taking positive steps to boost your business credit, you need to keep a close eye on your company’s credit rating. This means pulling your credit report from the bureaus that specialize in business credit and checking those reports roughly every quarter — yes, it costs money, but this is a worthwhile investment.

This strategy will give you ample opportunity to clear up any discrepancies, including disputing any errors and/or fraudulent activity before they do any lasting damage. In doing so, you’ll guarantee that the major business credit bureaus — Dun & Bradstreet, Equifax and Experian — have the most accurate information on file for your company.

Build Business Credit One Step at a Time

If business credit wasn’t among your top concerns before, hopefully this discussion has opened your eyes to how important it is to the livelihood of your company. Just by paying close attention and taking some simple precautionary measures, you can ensure your company is never held back by a spotty credit history.

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