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Easy! Build Great Business Credit in 6 Simple Steps

Building your business credit is one of the most helpful (and yet overlooked) ways to improve your business finances. With good business credit, you can reduce borrowing costs, improve cash flow and actually improve your bottom line. In this article, I’ll explain business credit and why you should care and then share 6 simple steps to take now to build great business credit.

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What is business credit, and why is it important?

“How’s your credit?” Most people are familiar with this question, usually referring to your personal credit when looking for car loans, credit cards and home loans. Just as you have personal credit scores that lenders use to make lending decisions, businesses can also have credit reports and credit scores.

Business credit can be a very important tool for your business. Lenders and suppliers often use business credit reports to make decisions about doing business with you. Your business credit can help you qualify for many types of small business financing, such as loans and small business lines of credit. It’s also a key element in getting good payment terms with vendors and suppliers.

In general, you can think of business credit as a kind of indicator of how healthy your business is financially. It’s primarily a measure of how likely your business is to pay its debts on time. If your business credit is weak, it can hurt your chances of getting loans or other types of small business financing.

What are the benefits of having strong business credit?

Before we dive into how to build a strong credit profile, let’s look specifically at how good business credit can benefit you and your business:

  1. Better terms on financing. Companies with strong business credit can often qualify for more favorable terms on loans, lines of credit and credit cards, such as higher loan amounts, lower interest rates and longer repayment periods.

  2. Increased borrowing capacity. A strong business credit score can increase a company's borrowing capacity, allowing it to take on more debt and pursue growth opportunities.

  3. Access to more financing options. Companies with good business credit have more options for obtaining financing, including traditional bank loans, SBA loans, lines of credit and commercial mortgages.

  4. Improved supplier relationships. Many suppliers will extend more favorable payment terms and discounts to companies with strong credit. This can be incredibly helpful for reducing cashflow pressure on a business.

  5. Credibility. A strong business credit score can improve a company's credibility in many types of relationships, such as making it more attractive to potential suppliers, customers, partners or investors.

What bureaus monitor and report on business credit?

There are three primary credit bureaus that collect information on businesses and their payment history. You may recognize two of them that are involved in personal credit reporting as well, but one is not. The three are Dun & Bradstreet (D&B), Experian Commercial and Equifax Small Business.

Each of the three main bureaus collect different information and use different scoring models, but the primary types of information that make up a business credit report include:

  • Industry classification

  • Public filings

  • Business registration data

  • Company details, such as # of employees and ownership details

  • Business operational data

  • Payment history and collections

  • Trade accounts and payment details

What are 6 simple steps to build great business credit?

Here are 6 steps you can take right now to build business credit for your business:

  1. Obtain a business EIN (employer identification number). It's important to have an EIN for your business, as this helps establish your business as a separate entity from you personally. Your business EIN is the tax ID that identifies your business to the government and to the credit reporting bureaus. It’s also used for #2 - opening a business bank account.

  2. Open a business bank account. This will help to separate your personal and business finances, which is important for building a good credit profile. It's also a good idea to confirm that the bank you choose reports to the business credit bureaus, as this can help to establish a credit history for your business.

  3. Establish a D-U-N-S number from D&B. The first step in building a good credit profile is to establish a credit file for your business. For one bureau - Dun & Bradstreet, you can register your business directly. For Experian and Equifax, you don’t have to do this. For D&B, you can get a D-U-N-S number from D&B through their website.

  4. Obtain a business credit card. By using a business credit card and making payments on time, you demonstrate the creditworthiness of your business. Even if you start with a small credit limit, you can gradually increase it as you establish a track record of on-time payments. Look for a business credit card that does not require a personal guaranty. And if you do get a card that requires a personal guaranty, make sure the card company does not report payment information on your personal credit record.

  5. Establish trade lines. This refers to establishing relationships with vendors that will report to the credit bureaus. Ideally you want your business to have three or more trade lines. Seek vendors that offer “net terms” and will report to the credit bureaus, or ask your current vendors if they do or can report your payment information.

  6. Pay bills on time. This is crucial. All the work above will go to waste if you have continuous late bill payments on your record. Late bill payments can and will have a negative impact on your business's credit score. This includes not only credit card bills, but also bills for utilities, rent, and other expenses.

How can you maintain your great business credit?

OK, you’ve taken steps to build great business credit. Now, how can you maintain your business credit and keep it in good shape? And how might you even improve it over time?

The first and most important step is to monitor your business credit report. It's very important to regularly review your business credit reports from the reporting bureaus to confirm that the information in their files is accurate and up-to-date.

If you find any errors or discrepancies, you can notify the appropriate credit bureau. Tip: most reporting bureaus offer monitoring services to notify you of changes to your business credit.

As mentioned earlier, it’s very important to pay vendors and monthly bills on time. Not doing this will negatively impact your credit profile. You can go a step further and even improve your credit profile by occasionally paying vendors early. Similarly, paying off a loan early can offer a boost to your credit profile.

Another way to maintain and even build your credit stronger is to diversify the type of credit you have. So, in addition to using a business credit card and working with vendors that report to bureaus, consider obtaining a business loan or line of credit. These can help make your credit profile even more well rounded and attractive.

Bonus tip: "utilization". With your personal credit scores, your “credit utilization” can quickly impact your scores. Credit utilization refers to the amount of credit used compared to the amount of credit available.

With business credit, however, your utilization has much less impact on your profile. This means you don’t have to be overly concerned about how much available business credit you’ve used.

Bonus tip #2: keep your personal score in good condition. OK, yes, your personal credit profile is separate from your business credit profile. Still, lenders for some business financing products may take it into consideration when evaluating your business's creditworthiness. This includes SBA loans, which often have requirements for personal credit scores.

So, try to keep your personal credit profile in good shape by paying bills on time and keeping your credit utilization to 30% or less if possible.

Conclusion: building business credit for the long run.

For owners of even the smallest businesses, a strong business credit profile is something worth striving for. Having a good business credit profile can greatly help your small business get access to the funding it needs to grow. It can also help your business get the best terms on any financing you do obtain. It can even improve cash flow through improved terms with your vendors and suppliers.

It can take a bit of time to establish payment history and creditworthiness, but for the many reasons as we looked at above, it can be extremely helpful toward supporting the health and growth of your business. Using the steps above, you can work toward building a strong business credit profile for your business and maintaining it for years to come.


About the Author

Mike Spitalney

Mike Spitalney is the CEO and founder of Everfund. Mike is on a mission to help small businesses get the best financing for their needs and avoid the confusion and complexity of today’s lending world. Over two decades, Mike and Everfund have helped thousands of businesses thrive and grow using a variety of short and long-term loan options, from working capital loans and lines of credit to SBA and bank loans and commercial mortgages. Outside work, you'll usually find Mike outside running, hiking or biking.


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