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5 Tips on How to Build Business Credit


Trying to build business credit can feel like a Catch-22 to small business owners – you need a strong credit history to get a loan, but it’s hard to develop that credit history if you can’t get a loan in the first place.

Yet, a strong credit history can lower your interest rates and open up access to more capital when you need it.

These five tips will help you learn how to build business credit right now.

1. Setting up your business structure – LLC and Tax ID Number

Start on the right foot by setting up a LLP, LLC or sole proprietorship. This will enable you to apply for a business loan in accordance with your business plan. Your CPA can advise you on the best legal structure for your particular situation.

You will also want to obtain a federal Employee Identification Number (EIN), which will serve as your business’ “social security number” on all interactions with the IRS. You will also use this number to open a business bank account and to build your business credit profile.

2. Keep business and personal finances separate

No matter how difficult it might seem to establish business credit at first, you must resist the temptation to use personal credit cards to fund your company. While using personal credit may be necessary when you are just starting up, your goal should be to establish separate credit to use strictly for business purposes.

At first, however, your personal credit score might impact your ability to start establishing good credit for your business. Be patient – after about two years, your business will be established, and you will not have to rely solely on your personal credit.

3. Get a credit card and a bank account for your business

Keeping in line with the advice above, you should establish both a separate credit card and bank account for your business. A basic credit card in your business’ name will help you start to build business credit immediately.

Look for a card that reports to all three of the main credit bureaus. Most business owners end up using two to three cards because responsible credit use on several accounts will strengthen a credit report, and help establish business credit over time.

Your business will need at least one bank reference to call on when you apply for a loan. Ideally, your bank account will be at least two years old when you seek a loan, but – of course – you cannot change this situation other than to open an account as early as possible.

Even more important than your account’s lifespan is its ability to show a cash flow capable of taking on a business debt. The optimal average daily balance will depend on your type of business and the financing you will seek.

4. Establish lines of credit with vendors and suppliers

Another way to establish business credit is to work with vendors and suppliers who will extend a line of credit to you. Not only can these sources serve as references if you want to obtain a larger line of credit, but many also report to the credit bureaus, further establishing good credit for your business.

5. Get listed with the business credit bureau

Dun & Bradstreet, one of the major business credit bureaus, gives businesses a separate credit file number (called a D&B or DUNS number) that rates their credit profile.

Visit the D&B website to see if your business is already listed and has a score. You can also apply for a free DUNS number after you have established your business and have an EIN. This number is used by lenders to determine your business’ credit worthiness, as most lenders will ask for your D&B number during the application process.

The ability to build business credit is critical for the success of your company, but building that credit is an ongoing process that takes time and effort. Follow the steps above for advice on how to build business credit, and be sure to check your business credit report regularly, at least one to two times per year.

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