Build Strong Business Credit Profile

Developing a strong business credit history is worthwhile. Credit lines open many doors for entrepreneurs, allowing them to purchase necessary equipment and inventory, hire employees, launch marketing campaigns, and maintain a steady cash flow even as revenue grows at a rapid pace.

Developing a strong business credit history is worthwhile. Credit lines open many doors for entrepreneurs, allowing them to purchase necessary equipment and inventory, hire employees, launch marketing campaigns, and maintain a steady cash flow even as revenue grows at a rapid pace.

Receiving approval for business loans and credit cards, on the other hand, can be a difficult task. The Federal Reserve's Small Business Credit Survey found that more than half (53 percent) of companies seeking new financing were unable to obtain the amount they requested in the survey.

Younger companies and those with weak credit portfolios were more likely to have financing deficiencies than older companies. The majority of traditional business lenders will not extend a loan to a company until it has been in operation for two years.

On the other hand, establishing creditworthiness can be accomplished in a straightforward manner. It is important to note that as you learn how to build business credit, each step will focus on improving the factors that are used to calculate your business credit score. This is due to the fact that establishing business credit results in an increase in the business credit score.

If you have a good credit score, you will be able to obtain financing with favorable terms. Businesses will offer business credit cards with higher credit limits and lower interest rates in order to attract more customers. It's possible that your suppliers will offer you more flexible payment options.

It takes time and effort to build a business credit score, just as it does to establish a good reputation. Take the steps outlined below if you want to increase your purchasing power while simultaneously lowering your borrowing costs.

In 11 simple steps, you can establish your business credit.

Following the 11 steps outlined below will put your company in the best possible position for credit success. Learn how to lay the groundwork for a good business credit score and how to get approved for new lines of credit by following these steps.

1. Incorporate your company or form a limited liability company to conduct business (LLC).
Keep your business finances and credit score separate from your personal finances and credit score in order to maintain financial and credit stability. You can accomplish this by forming a corporation, an LLC, or another type of business organization. As a result, both of your credit scores will be protected.

If you own a sole proprietorship, which accounts for 23 million businesses in the United States, you may prefer to use your personal credit score for business credit purposes.

However, as your business grows and your credit limits increase, business mistakes such as late or missed payments may put your personal assets at risk. Additionally, at least one in every five consumers has a mistake on their credit reports—mistakes that can prevent you from receiving business funding.

Lenders and investors, on the other hand, consider distinct business financials to be more legitimate. It's also important to establish a business phone number and have it listed in a directory if you don't already have one. This is yet another piece of evidence that your operations are legitimate, and, as we'll discuss later, it encourages business credit bureaus to begin reporting your credit scores to you as a result.

2. Employer Identification Numbers (EINs) must be obtained (EIN).
To begin building credit, you must first obtain an EIN (also known as a business tax ID number) from the Internal Revenue Service. Consider an EIN to be the equivalent of your company's Social Security number.

If your company is a corporation or a partnership, if it employs employees, or if it withholds taxes from employees' wages and salaries, you will require an EIN number. Obtaining an EIN is also possible for sole proprietors. Filling out a brief questionnaire is all that is required to apply.

In addition, obtaining an EIN notifies the three major business credit reporting agencies, including Dun & Bradstreet, Experian, and Equifax, that you are the owner of a legitimate business entity. It is more likely that each agency will open a business credit file for you as a result of your application. Your EIN will be linked to your company's credit history as well as any future credit card applications you make.

3. Create a business credit file with each of the three credit reporting agencies.
Risk factors associated with businesses are measured by companies such as Dun & Bradstreet, Experian, and Equifax. To put it simply, they look at things like the age of the company, its payment history, and the number of accounts it has in its business credit report.

After that, they create a business credit file and issue a variety of business credit scores to customers. It's important to remember that the credit bureaus may already have a credit file on your company, which you should check. To double-check, go to each company's website and type in your company name in the search bar. If the files are already in existence, you can either purchase copies or use your free reports to check them for errors.

If your company isn't listed, apply for an EIN and then request that a supplier or lender report your payment history to a third-party agency. Another option for establishing a credit history is to obtain a D-U-N-S Number directly from Dun & Bradstreet.

4. Create business relationships with your suppliers.
In the event that you do not qualify for other forms of credit—or even if you do—set up trade credit lines with your suppliers to help you pay your bills. Payment terms such as net 15 or net 30 have most likely appeared on invoices from your vendors, and you should be familiar with them.

These terms give you a specific number of days to pay what you owe, which is typically calculated from the date of the invoice. When you place orders at your local office supply store, for example, you may be eligible for lines of credit from the retailer. You establish a positive credit repayment history when you pay your invoices on time or ahead of schedule.

As a best-case scenario, a few of your suppliers have already reported payments to commercial credit reporting agencies. If they don't, inquire as to whether they would be interested in becoming a trade reporter. In general, it is best practice to pay invoices as soon as possible and to negotiate longer payment terms when possible. This demonstrates to lenders that you are able to meet your financial obligations and that you have accrued more credit over time.

5. Opening a business bank account.
A common misconception is that you must have revenue in order to open a business bank account. However, you should manage your money through a business checking account in order to keep your books accurate and make tax preparation easier.

In most cases, your bank will have policies in place that prohibit personal accounts from being used for business transactions. If you own a corporation, you must keep your business finances separate from your personal finances in a separate bank account.

It is possible to pay your business credit card bill with your business checking account if you conduct financial transactions with a business credit card.

6. Obtain a corporate credit card or a business credit card for your company.
When possible, avoid charging business expenses to a personal credit card; there are better options available for everyday business transactions. However, there are significant differences between business credit cards and corporate credit cards, and both are excellent tools for establishing credit.

Business cards are available to companies and sole proprietors of all sizes, while corporate cards are only available to businesses with annual revenues exceeding $4 million and annual expenses exceeding $250 million. Business cards are also available to individuals.

One thing that distinguishes business credit cards from corporate credit cards is that most card issuers require applicants to sign a personal guarantee before approving either type of credit card application. According to these terms, you are personally liable for payments even if your business is unable to make them, putting your personal credit score and assets at risk of being compromised.

Currently, Brex is the only corporate credit that does not necessitate the use of personal guarantees. Brex also reports your on-time card payments to Dun & Bradstreet and Experian in order to assist you in building your business credit history.

Credit limits for corporate cards, or the maximum amount a borrower can spend, are determined by a variety of factors, including the borrower's business credit score, the amount of debt owed, and the borrower's repayment history.

Brex, on the other hand, evaluates companies based on contemporary metrics such as cash balance and sales revenue in order to extend credit. Credit grace periods, which can last anywhere from a few weeks to several months, give you additional time to pay off outstanding balances.

7. Making repayments on time (or early) every time is essential.
Creditworthiness is largely determined by a company's payment history. When it comes to establishing credit, paying balances on time is one of the most effective methods. This is true whether you're paying an invoice, a loan, or a credit card bill. It's also important to remember that late payments and missed payments will have a negative impact on your credit score.

Overdue bills can also have an impact on your credit limit. Your lender has the right to change your account's credit limit at any time, and they may reduce it if you are in default on your payments.

8. Look for loans from lenders who will report your application to the business credit bureaus.
Before approving a small business loan, most lenders require that your company has been in operation for at least two years. This is a significant barrier to borrowing for new businesses, but there are alternatives, such as microloans from the United States Small Business Administration (SBA) (SBA).

Look for business financing from creditors who are willing to report to commercial credit bureaus. The same rules apply to loans as they do to credit cards: pay off your debt as soon as possible and avoid applying for too many lines of credit at the same time.

9. Maintain the status quo of existing credit accounts and exercise patience.
One piece of advice on how to build business credit is that it is a marathon, not a sprint, and that it should be approached as such. The longer the credit line has been in existence, the better. Keep your existing credit accounts open because the longer you keep them open, the better your creditworthiness will become.

The fact that establishing business credit has so many beneficial effects on your life may make you want to see results on your credit report immediately. However, it is possible that updates, such as the addition of new trade lines, will not appear for up to two months. In the meantime, keep your debt to a minimum and keep an eye on your reports.

10. Keep an eye on your company's credit reports and credit scores to ensure they are accurate.
Because each of the credit reporting agencies has over 200 million active files to manage, no one has a greater incentive to review your business credit data than you do to do so.

The same as with personal credit reports, a business credit report is available, but they are not usually provided for no charge. There are a number of free services available, such as CreditSignal and Nav, that allow you to monitor your credit score and view report summaries. This is not the same thing as your full credit report, which is available upon request. You will, however, receive notifications whenever your score changes.

Maintain a close eye on your business credit scores as your credit improvement strategy takes shape. We've written a comprehensive guide that explains how to obtain and maintain good business credit scores from Dun & Bradstreet, Experian, Equifax, and FICO, as well as how to improve each score.

The credit utilization ratio, which measures how much of your available credit you are currently using, is a significant factor in determining your credit score. In general, it's best to keep this ratio below 30% across all of your financial accounts.

11. Keep your business credit profile up to date and check for errors on a regular basis.
Because businesses are not entitled to free business credit reports in the same way that consumers are, there are three primary ways to monitor your credit profile on a regular basis. You can do the following:

- Purchase credit reports directly from each of the three credit bureaus in one transaction.
- Make use of a financial tool that allows you to obtain a free copy of your credit reports, or a summary version of your credit reports (e.g., Business    CreditWise, CreditSignal, Nav)
- Within 90 days of being denied financing, you should request a free business credit report.

Once you have access to your report, check to see if any of your company's information, such as its name, phone number, and address, is incorrect or out of date.

Verify that the information on each line of credit is correct. Pay close attention to any charges that are unfamiliar or unauthorized, as these could be indications of fraudulent activity. Submit any disputes to the appropriate business credit agency as soon as possible.

When it comes to obtaining business credit
Developing business credit is about more than just surviving from one day to the next, though that is a good starting point. It is critical for long-term success for business owners to prioritize establishing business credit and building a good credit score, which is why strategic business owners prioritize this task.

At the end of the day, you're building a credit history and a web of financial relationships that could last for years or years. As the lending and borrowing markets become more competitive, your creditworthiness will become your most valuable asset, so begin building it today.

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