If you want to evaluate the financial strength of a company, you can simply have a look at the business credit. A strong score will help you in getting better business loan terms, low business insurance rates, and more beneficial terms with the supplier.
Establishing a business credit for the first time can be a fast and easy process. You will have to first get your business registered and apply for two different identification numbers online, after which you can open a business credit card that will report to business credit bureaus.
But it’s very important for you to be patient in this whole process of building a business credit and developing a history of timely payment. In this article, you will learn the step-by-step guide on establishing business credit and tips for making your profile strong with time.
Register your business
The very first step for business owners is to register their business for business credit. This process can differ on the basis of your business structure and the place you live. Some states don’t ask you for sole proprietors in your register of the business under your own name. However, you would still require a license for your local business, especially if you start an LLC.
You need to make sure that you are applying for an EIN, or employer identification number, with the IRS. This is a business tax ID required by the IRS for various businesses. It can also be necessary for other purposes, like opening a business account.
Apply for business credit with Dun & Bradstreet
There are three types of primary credit bureaus: Dun & Bradstreet, Experian, and Equifax. If you want to get a business credit score from Dun & Bradstreet, you need to first apply for a DUNS number. This can be done without any charges through the Dun & Bradstreet website. Lenders and other businesses will use this nine-digit number to check your company’s credit profile and financial health before they agree to start a business with you as a partner.
However, you may not apply for business credit with the other two credit bureaus, as they start a credit file for your company on their own and pull information from the lenders reporting to these bureaus. They can also seek information from public records such as court filings.
Open a business credit card
You can get a business credit card based on your credit score, which the issuer reviews when you provide one. Opening a business credit card will also help you start credit building early, meaning you will have a long credit history and a stronger score for the future.
If your credit score is above good, suppose between 690 and above, you will get several options for business credit cards. If that’s not the case, you can consider options like fair-credit business credit cards, secured business credit cards, and bad-credit cards. You can also skip to the next step.
If you use your business credit card wisely, it can help you in building a good business credit. Most small business cards report all the activity related to credit cards to credit bureaus, so timely payments and low credit utilization, which is less than 30% of your balance credit, help in building a business credit score. On the other hand, missed payments and delinquencies usually negatively impact both your business and personal credit score.
Set Up Net-30 Accounts with Suppliers
Suppliers often extend the trade credit, which allows you to repay multiple days or weeks after you receive the inventory. When a supplier allows you 30 days to repay the invoice, it’s a net 30 account.
You can boost your business credit score with this account payable relationship, provided your supplier reports to the business credit bureau. You can also list them as a trade reference on your account, and Dun & Bradstreet will ask for follow-up and collect your data in case they don’t.
Choose lenders that report to business credit bureaus
Loan for a small business can boost the credit of your business if you make all the payments on time, but you know all the lenders don’t report to business credit bureaus. Merchant cash advance companies typically don’t, while online loan companies do. Therefore, if you are applying for funding, discuss with your potential lenders whether they report data to business credit bureaus. Try to compare their responses from another loan for a small business lender, like interest rates, to look for the right fit.
Conclusion
Establishing and building business credit is essential for securing favorable financing, better terms with suppliers, and reduced insurance rates.
By following steps like registering your business, obtaining an EIN, setting up net 30 accounts, opening a business credit card, and working with lenders who report to credit bureaus, you can lay a strong foundation for a solid credit profile.
Remember, building business credit takes time and consistent effort. Make timely payments and manage credit wisely to gradually strengthen your profile, setting your business up for long-term financial flexibility and growth.
