Any entrepreneur looking to grow their company, secure funding, or separate their finances must consider building business credit. However, with so many different recommendations, you can easily waste time on strategies that do not necessarily create good results.
When it comes to establishing and boosting your business credit, forming the right business structure and monitoring your credit card spending can be essential. Whether you’re just starting or strengthening your financial standing, read more to discover strategies that work.
What Is Business Credit?
Business credit is a financial profile that demonstrates a company’s ability to borrow money and repay it on time. It is a company’s financial reputation and track record regarding borrowing and repayment, assessed through several factors, including the following:
- The company’s credit history
- Payment behavior
- Financial relationships
- Company size
- Business revenue
- Outstanding debt
It is similar to personal credit and is tracked by credit bureaus, such as Dun and Bradstreet and Equifax Business. Business credit is tied to a company’s Employer Identification Number (EIN), not the owner’s Social Security Number (SSN), which separates personal and business finances.
Unlike personal credit, anyone can view your business credit report without your permission. Therefore, it is an important part of your professional reputation. Building and maintaining solid business credit is essential for long-term growth.
Why Is It Important to Build Business Credit?
By building business credit, you can establish your company’s financial credibility and unlock growth opportunities. With strong credit, you’re more likely to qualify for loans, credit cards, and other financing options with better terms and interest rates.
Good business credit also allows you to negotiate more favorable payment arrangements with suppliers and vendors. This can improve your company’s cash flow and operational flexibility. Solid business credit also separates your business and personal finances, reducing liability on your part and protecting your credit score.
Insurers, lenders, landlords, and even potential partners usually check this metric to evaluate risk. A strong score can improve your standings and make your company more attractive to work with.
Since building good business credit offers more financial flexibility, it allows you to manage unexpected expenses, invest in expansion, and operate smoothly during slow periods. Overall, business credit is not always about borrowing; it is about creating long-term stability to grow your business.
How Can You Build Business Credit Fast?
Building business credit can take an extended period, even up to some years. This can be quite a problem, especially if you need to build credit fast. However, you can establish a solid credit score quickly through the following steps.
Choose the Right Business Structure
To build business credit fast, start by choosing the right business structure, such as a corporation or a limited liability company. This legally separates your business from your person and establishes credibility. This step also involves obtaining an EIN.
Register Your Business
Registering your business with the appropriate state and local agencies is an important step in building business credit quickly. It makes your business legally recognized and allows you to apply for licenses, open a business bank account, and establish trust.
Open a Business Bank Account
By opening a business bank account, you can separate your company and personal finances. This allows you to create a clear financial trail. Lenders and credit bureaus interpret this as a sign of legitimacy, allowing you to avoid cash flow problems.
Register for a DUNS Number
To start building credit fast, you should register for a DUNS number with Dun and Bradstreet. This unique identifier is used to track your business credit activity and is often required by vendors and lenders. It improves visibility with major credit bureaus.
Apply for a Business Credit Card
When building business credit, choose a card that reports to major business credit bureaus. You can use it for regular expenses and pay balances on time. Responsible use of these credit cards boosts your credit profile, improves cash flow, and establishes a strong payment history.
Maintain a Low Credit Utilization
Keeping a low credit utilization, ideally below 30%, is important for building business credit fast. It shows lenders that you manage credit responsibly. Keeping balances low relative to your credit limits positively impacts your credit score and indicates financial stability.
Monitor Your Business Credit Card
By monitoring your business credit card, you can ensure accurate reporting, catch errors quickly, and track your payment habits. Regular reviews enable you to stay within the credit limit, pay on time, and address issues promptly, strengthening your credit profile.
Establish Tradelines for Your Business
Establishing tradelines with vendors or suppliers who report to business credit bureaus is a powerful way to build credit fast. Work with the best tradeline companies to get good value at the right price. By maintaining these options responsibly, you can establish a stronger business credit.
Endnote
Building business credit establishes your company’s credibility, helping you qualify for loans and financing. You can achieve this by choosing the right business structure, registering your business, opening a bank account, and registering for a DUNS number. Applying for a card, maintaining low credit utilization, monitoring your business credit card, and establishing tradelines can also help you build credit.
