Establishing and building credit for your business should be at the top of any small business owner’s to-do list (or at least as close to the top as possible—we know business owners have a lot on their plates).
If you’re operating a new business, you might not have a business credit score, and you may rely on personal credit cards or assets to support your business. While this type of arrangement may work in the short-term for fledgling businesses, it can lead to significant challenges for older or established businesses when they try to grow. Business credit takes time to build, so it’s best to start building it as soon as you can, especially if you have plans to grow or expand your business.
When you first start building your credit for your business, you may need to sign a personal guarantee to open a credit card or apply for a loan from a traditional lender. This means you’ll be personally liable if your business can’t repay what is owed, and your personal assets may be at risk. Once you establish business credit, you can qualify for a business credit card or traditional loan without a personal guarantee.
Building strong business credit has a number of benefits in addition to safeguarding your personal assets, including:
- Typically better interest rates or terms on funding from traditional and alternative lenders
- Higher likelihood of getting funding approved from traditional and alternative lenders
- Lower insurance premiums
- Positioning your company for more favorable payment terms with new vendors, suppliers, and alternative lenders
- Reducing the number of times you will need to prepay for products or services purchased
Keep reading for our expert advice on how to build business credit for the first time.
How to Establish Business Credit for the First Time
The sooner you can start building your business’s credit, the stronger your position will be when you are ready to grow. Follow these steps:
1. Establish credit
Step one in building credit is to—you guessed it—establish credit in the first place. If you aren’t sure whether you’ve already established credit, you can check your credit score (for a fee) at one of the three major business credit bureaus (Dun & Bradstreet®, Experian®, and Equifax®).
|GREENBOX GUIDANCE: Not all business credit scores are created equal. Different agencies create and sell their own score, including FICO®, Dun & Bradstreet®, Experian® and Equifax®. Some lenders prefer scores from certain providers, so always check before you apply for funding.|
If you use a personal credit card for business expenses, chances are you have not yet established business credit. Here’s how to establish business credit for the first time:
- Incorporate as an LLC (limited liability company). The legal structure of your business can significantly impact your business credit. Incorporating as an LLC keeps your personal and business identities separate and distinct. If your business is already a corporation or LLC, you’re off to a great start. If your business is structured as a sole proprietorship or general partnership, your personal and business financials are legally the same, and your credit rating will be the same as well.
- Get a federal employer identification number (EIN). Your EIN (also known as Taxpayer Identification Number) is a unique nine-digit number assigned by the IRS to identify businesses operating in the United States. It’s free to get an EIN.
- Open a business bank account, and stop using your personal account to support business. Your business account should be opened in the legal corporate name of your business. Once it’s open, all business payments should be made from this account.
2. Get a business credit card.
After you establish credit and open a bank account to start building your credit score, you will eventually qualify for a business credit card. As soon as you can, start making business-related purchases on this card to initiate movement from credit reporting agencies. This is not an invitation to go into debt—you should always pay your bills early or on time.
3. Establish a line of credit with vendors and suppliers.
If you have been paying your vendors and suppliers cash-on-delivery (COD), ask for a credit application and start paying a monthly invoice instead. When appropriate, ask them to report your payment history to the credit reporting agencies.
4. Pay your bills on time.
On-time payments—or better yet, early payments—are critical to establishing good credit. Try not to carry a balance on your business credit cards or vendor accounts, and keep a close eye on your debt-to-asset ratio.
5. Monitor your credit
Check your credit score a few times a year. If you spot any errors or inconsistencies, you can file a dispute and ask for corrections.
How To Build Business Credit Fast
If you already have a credit score but it’s not strong enough to qualify for a business credit card or credit terms from suppliers or vendors, you might be unsure how to proceed. One common method of jumpstarting your business credit is to take out a small loan and pay it off on schedule, or early if possible. A successful round of funding can positively impact your business’s credit, and will also put you in a better position to qualify for more funding in the future when it’s time to grow.
Getting a small business loan or other financing from a traditional lender is difficult at the best of times. Applicants with strong credit scores are often rejected, so what do you do if you have just established credit or have low credit?
Alternative lenders like Greenbox Capital® have different approval requirements than traditional lenders like banks. Instead of focusing on your business’s credit score, alternative lenders consider the overall health and potential of your business, which means they can approve more loans than traditional lenders, often in less time. Greenbox Capital can fund loans as small as $3,000 in just 24 hours so you can get started building your credit right away.
Building business credit fast should be a top priority for all small business owners. A good credit score offers your business a number of advantages, including:
- Increased likelihood of receiving funding to grow from alternative or traditional lenders
- Better terms on any small business loans
- Greater security for your personal assets
If you’re starting from scratch, one quick way to build credit is to access working capital funding from an alternative lender like Greenbox Capital. A successful round of funding (that means funding that has been repaid on time) will positively impact your credit score, and may give you the boost you need to fuel your growth.