Building business credit is very important for small business owners and entrepreneurs. It allows you to get business loans and lines of credit from lenders and can help you get better terms on those loans. Business credit can also help you get business insurance at lower rates. Not to mention if you ever want to sell your business, potential buyers will look at your business credit history to determine how well you’ve managed your finances. So, building business credit is not only important for getting access to capital, but also for protecting your business’s value. To start let’s go over a few questions. Â
What is a business credit report?
A business credit report is a record of your company’s financial history. It includes information on your business’s creditworthiness, payment history, and outstanding debts. Business credit reports are used by lenders to assess your company’s risk when considering loans or lines of credit.
How do I get a business credit report?
There are several business credit reporting agencies, such as Dun & Bradstreet, Experian, and Equifax. You can order a copy of your business credit report from these agencies.
What information is included in a business credit report?
Your business credit report will include information on your business’s payment history, credit utilization, and outstanding debts. It will also include your business’s D-U-N-S number, which is a unique identifier assigned by Dun & Bradstreet.
Building business credit can help you grow and scale your business. It can also help you get business loans and lines of credit at better rates. Business credit can give you access to business credit cards with higher limits and better rewards. Building business credit is important because it can help you get the financing you need to grow your business. It can also help you get better terms on loans and lines of credit. Here are a few ways to get started on building business credit.
1. Make sure your business is set up as its legal entity.
This will help you separate your personal and business finances and make it easier to get credit in your business’s name. When you’re setting up your business, it’s important to make sure that it’s registered as its legal entity. This will help protect your assets in case of any legal problems down the road. One way to do this is to set up business credit. This means getting a business credit card and using it for all of your business expenses.
This will help keep your personal and business finances separate, and it will also build up your business’s credit history. Another way to create a legal barrier between you and your business is to set up an LLC or corporation. This can be a bit more complicated than setting up business credit, but it will offer even more protection for your assets. Talk to a lawyer or accountant to learn more about which business structure is right for you.
2. Get a business credit card.
This is an important step in building up your business credit history. If you’re looking to get a business credit card, there are a few things you’ll need to do. Here’s what you need to know about how to apply for a business credit card:
1. Check your business credit score. Before applying for a business credit card, it’s important to check your business credit score. This will give you an idea of whether or not you’re likely to be approved for a business credit card. You can check your business credit score for free at sites like Nav.com and Dun & Bradstreet Credibility Corp.
2. Find the right business credit card for you. Once you know your business credit score, you can start looking for business credit cards that you’re likely to be approved for. There are a variety of business credit cards available, so it’s important to find one that fits your business needs.
3. Gather the required information. When you’ve found the right business credit card, you’ll need to gather the required information for the application. This includes things like your business name, address, and tax ID number.
4. Apply for a business credit card. Once you have all of the required information, you can apply for the business credit card online or over the phone. Be sure to have your business credit score handy so you know what to expect in terms of approval odds.
5. Wait for approval. Once you’ve submitted your application, it’ll be up to the business credit card issuer to decide whether or not to approve you. If you’re approved, you’ll typically receive your business credit card within 7-10 business days.
3. Pay your bills on time.
One of the best ways to build business credit is to make sure you pay your bills on time. This includes any debts you might have, such as loans, leases, or lines of credit. By making timely payments, you’ll demonstrate to potential lenders that you’re a responsible borrower who can be trusted to repay debts. This can help you qualify for better terms and rates in the future. This will help you build a positive payment history, which is one of the key factors that businesses look at when considering extending credit.
If you have any past-due payments, it’s important to catch up as soon as possible. Late payments can stay on your business credit report for up to seven years and can significantly damage your chances of getting approved for new financing. So, if you’re behind, take steps to get caught up and back on track.
4. Keep your debt-to-credit ratio low.
This means that you should only borrow what you can afford to pay back and try to keep your outstanding balances below 30% of your total credit limit. Your debt-to-credit ratio is simply the amount of debt you have compared to the amount of credit available to you. The lower this ratio is, the better it is for your business credit score. A few ways you can keep your debt-to-credit ratio low are:
1. Use business credit cards wisely – don’t max them out and make sure you make your payments on time.
2. Get a business line of credit – this can help you access funds when you need them without accruing too much debt.
3. Pay off your business debts as quickly as possible – the sooner you’re debt-free, the lower your ratio will be.
5. Diversify your sources of credit.
Diversifying your sources of credit means having a mix of different types of credit accounts, such as revolving lines of credit, term loans, and leasing agreements. Having a mix of different types of credit can show lenders that you’re a responsible borrower and that you can manage different types of credit products. It can also help improve your business credit score.
To get started, you can apply for a business credit card or business loan from a bank or other financial institution. You can also ask suppliers if they offer trade lines of credit. By diversifying your sources of credit, you can help build business credit and improve your chances of getting approved for loans and other types of financing in the future.
6. Monitor your business credit report.
You can monitor your business credit score by ordering a copy of your business credit report from one of the major business credit reporting agencies. Your business credit score is a numerical representation of your company’s creditworthiness. It is based on the information in your business credit report and is used by lenders to assess your company’s risk when considering loans or lines of credit.
Monitoring your business credit score is a good way to stay on top of your company’s financial health. By keeping tabs on your business credit score, you can identify potential problems early and take steps to correct them. You can get free business credit reports from major business credit reporting agencies. Reviewing your report regularly will help you catch errors and identify any negative information that may be reported about your business.
7. Use trade references.
A trade reference is a business reference from a supplier, vendor, or other business that you have done business with in the past. These references can help show lenders that you are a responsible borrower and have a history of meeting your financial obligations.
To get started, you will need to gather some basic information about your past business dealings, including the names and contact information for your references, as well as details about the transactions you had with them. Once you have this information, you can start reaching out to your references and asking them to provide a written letter or statement verifying your business dealings.
It is important to remember that your trade references are just one part of your business credit profile. Lenders will also look at other factors, such as your business financials, before making a lending decision. However, having strong trade references can help give you a leg up in the business credit-building process.
8. Get a Dun & Bradstreet D-U-N-S number.
A D-U-N-S number is a unique nine-digit identifier that is assigned to business entities. This number can be used by business owners to track their business creditworthiness and also serves as a way for creditors to identify businesses when they pull business credit reports.
To get a D-U-N-S number, you’ll need to provide some basic information about your business, including your business name, address, and phone number. You can apply for a D-U-N-S number online through the Dun & Bradstreet website.
Once you have your D-U-N-S number, you can begin to build business credit by ensuring that your business information is being reported to business credit reporting agencies. You can do this by opening business credit accounts with vendors and suppliers that report to business credit agencies.
Paying your business credit accounts on time and maintaining a good credit history will help you build a strong business credit profile, which can be beneficial when you’re looking to obtain financing in the future.
Dun & Bradstreet’s D-U-N-S number is a globally recognized business identifier that allows business owners to track their company’s creditworthiness. The number is also used by creditors as a way to identify businesses when pulling business credit
9. Establish relationships with business lenders.
Start by meeting with a loan officer at your local bank or credit union and explain your plans for growing your business. As you build a relationship with your lender, they may be more likely to extend credit to your business in the future. It’s important to make sure your business is in good standing. This means ensuring that your business is registered with the proper authorities and that all of your paperwork is in order. You should also have a solid business plan and financials in place.
Once you have your business in good standing, you can start reaching out to potential lenders. It’s important to build relationships with a few different lenders so you can compare terms and conditions. When you’re ready to apply for financing, be sure to shop around and get quotes from multiple lenders.
Finally, remember that building business credit takes time. If you’re patient and consistent, you will eventually be able to access the financing you need to grow your business.
10. Join a business credit association.
Many business credit associations can help you build business credit. To join one of these associations, you will need to provide some basic information about your business and your business credit goals. Once you become a member, you will have access to resources and networking opportunities that can help you build business credit.
Some business credit associations require membership fees, while others do not. You should research different organizations to find one that fits your needs and budget. Once you find an organization that you would like to join, simply follow the instructions on their website to become a member.
Joining a business credit association is a great way to network with other business owners and learn more about building business credit. By becoming a member, you will have access to resources and information that can help you reach your business credit goals.
Lastly, always remember to keep personal guarantees to a minimum. If you are required to personally guarantee a business loan, make sure that the collateral is sufficient to cover the loan amount.
In summary
If you’re looking to start building your business credit, hopefully, this article has given you a few good places to start. Keep in mind that it takes time and patience to build up a strong credit history, so don’t get discouraged if things don’t happen overnight. By following the tips we’ve outlined here and by being diligent about paying your bills on time, you can give yourself the best chance of establishing a healthy credit profile for your business. Have you started building your business credit yet? If so, what strategies have worked best for you? Please let us know down below. Thanks for reading!