Building Business Credit Basics

If you're just starting a business, fairly new into your business, or considering expanding, one of the most important steps you will take is to build your business credit.  Many business owners mistakenly rely solely on their personal credit and funds to start and grow their business. Once these are exhausted, the owner has very limited access to other funding sources.  Consequently, about half of all businesses do not make it past the first five years. 


It's important that you build your business credit so you won't fall into this category and can obtain much needed financing for your business when the time comes.  Yet most people think that obtaining business credit is as easy as getting personal credit, where the only thing you have to do is to begin filling out applications for business credit cards, lines of credit and loans.  This is not only incorrect, but can even shorten the life of your business.  

Rather than going about it  blindly, it's important that you know the steps to building positive business credit from the start.

Separate Your Business Credit from Your Personal Credit

The first and most important step for you to take is to separate yourself and your credit from your business.  Personal credit is harmed very easily and even one inquiry on it can lower your score.  Whereas, business credit is treated differently and can take several inquiries and multiple loans being out without harming your business credit score. 

So...building your credit begins from the start of you obtaining an LLC or incorporating your business and then obtaining an EIN (Employer's Identification Number) from the IRS.  From here, all your credit will be linked to the name you incorporated under (as well as your own personal name until you have fully established your business credit apart from your own personal credit) and your EIN.  So the next step for you will be to open a checking account with your local bank under your corporation's name using your EIN.  

Establish a Relationship with Your Local Bank

Establishing a relationship with your local bank can also be crucial to you down the road, so if you do all your business online, consider establishing an account also at your local bank, where they can get to know you personally.  Most banks will allow you to open a business bank account with as little as $100.  It's important to build a positive banking relationship, as banks typically report to Equifax Business, so while it's not important how much you keep in the account, it is important to never allow it to have a negative balance.  

NOTE:  ** Remember, even when you begin with IRS, you need to make sure that your corporation's name appears exactly the same on every single document and account you open. If not, you're taking the risk of having mix-ups and errors on your reports in the future.**

Register Your Business with a Business Credit Bureau

After you have established your business name and bank accounts, go the Dun & Bradstreet website (www.DnB.com) and register for a D-U-N-S Number.  This process will take 30 days.  But unless you're in a hurry for some reason, I don't recommend you pay to speed up the process.  Furthermore, once you're on their site, you will see offers from them for packages ranging any where from $40 - $300+ with special features to make them seem attractive, but again, I recommend you save your money and don't buy these.  They are in business for themselves and do have sales representatives who will be glad to take your money for these packages unnecessarily.  

After you've registered with Dun & Bradstreet, register your company with the major business credit bureaus. The business credit bureaus are Experian Business, Business Credit USA, and Equifax Business. You can use either your EIN or your DUNS for this.  These business credit bureaus frequently have different requirements regarding what you need to register and maintain a positive credit approval so make sure you pay attention to the details as failing to comply with these rules can actually harm your credit. 

Good Business Credit is Important for Financing

The business credit bureaus gather information about the credit transactions your business engages in and then they use it to create a business credit report about your company.  The credit reports also take into account the credit cards and bank loans you have, as well as similar financial information. While not the only factor considered, paying your bills on time and keeping your credit cards low are two of the best ways to ensure you have a good credit report.  Essentially, business credit makes you a more desirable candidate for financing, exactly what you want to be when you are trying to expand your business.  

Gaining Credibility for Your Business

Now that you've established your business' credit presence, you need to give your corporation some much needed credibility. This is important because when you get ready to start applying for credit, these vendors and creditors are going to look for background information on you. This is done by 1) creating a website, 2) getting a legitimate business email address, and 3) having a business designated address and phone line that's listed in the 411 directory.  While this may sound like a lot, you can actually have all this completed in 3 days time.

Obtaining Your Website

Your website doesn't have to be spectacular. Creditors simply want to see that your company has an Internet presence.  If building an online presence is not important to your company, you can make a one-page website that outlines your company's name, purpose and line of business, and contact information.  You can accomplish this cheaply and quickly 
through any of the web hosting companies, like GoDaddy or Host Gator.  

Once you join these sites and find a name for your site, they have great customer service that will walk you through the steps of putting up your one-page site.

Your Business Email Address

When you sign on with a web host for your website, you will usually be given a number of email addresses included with it.  Again, simply call their customer service and ask the details.  Your email address will be the same as the name you choose for your web site, something that should reflect your business appropriately, rather than using a free email address like g-mail or hotmail.  

Establishing Your Phone Number

Having a phone number that is strictly for your business will help you improve your business credibility.  You'll want to establish a land line for your business purposes or an 800 number that can be listed.  And you should set up this line with a voicemail greeting that is professional. 

Land lines are best, as they are automatically listed with local and 411 directories, but you can also obtain and 800 number through an 800 number service and then search online for free listing websites such asListYourself.net and YP.com to list your 800 number with them.

These are the basics needed in order to get started with building business credit. Remember that this process isn't done overnight, so be patient. Once you get into the swing of things, you'll find that it's definitely not hard either. Hope this has helped to get you started with a few basics. Would love to hear your thoughts or what you've learned...  Share with us below in the Comments section...

To Your SUCCESS,

          Thea