establishing business credit
Small Business

6 Tips for Establishing Business Credit for the First Time

Establishing business credit for a business of any size is a must.

Running a business is never easy. As a business owner, you have to think about everything! This includes buying inventory, paying suppliers, and making sure you can make payroll for your employees. To do this, many business owners turn to banks and other lenders to obtain a loan. However, they must have already gone through the process of establishing business credit.

Establishing business credit is important for many reasons. The most important is so that you can get approved for a loan with a competitive rate. Getting business credit or a loan is the solution for organizations that want to buy new equipment, enhance inventory levels, or even fund payroll.    

Lending institutions, however, have to make sure of the borrower’s capacity to pay on time. By checking a business entity’s credit history and score, banks can arrive at better decisions on their loan application. 

Thus, a company will have limited opportunities without a credit history. Here’s how you can build yours as a start-up business.

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Steps to Building Business Credit

Building a credit history for your business isn’t only necessary when applying for a business loan. Some agencies and private institutions check a company’s business credit records to ensure they’re dealing with a financially healthy entity before partnering with them.  

There are a few ways to establish your business credit history. Take note of the steps below if you’re starting from scratch.

1. Have Your Business Registered

Whether planning to apply for a loan, an organization must decide on the business ideal set-up and submit the requirements needed to register a business. 

Choosing the best business structure is necessary because it can impact how your business handles taxes. It can also affect the level of personal liability you’ll have, and the administration and record-keeping requirements for your business.

2. Get a Data Universal Numbering System (DUNS) Number

A Data Numbering System, or DUNS, was developed by Dun and Bradstreet (D&B) to streamline credit reporting methods. D&B is a company that provides risk and financial analysis to companies worldwide. DUNS is the gold standard in credit reporting. Besides US-based companies, the system counts the European Commission and the United Nations as users.

For instance, if your construction business has a DUNS number and you’ve gained enough favorable credit records, you’ll likely have access to the best credit builder loans available on the market. D&B has DUNS records for millions of global business entities. Like the IRS, any business that wishes to register will have to set up their profile in the D&B database to get their credit report identification number.

3. Secure an Employer Identification Number (EIN)

Businesses must get an EIN to identify every transaction they perform with the Internal Revenue Services (IRS). Getting an EIN is also an essential requirement when opening a business banking account or getting a business loan. You may go to the IRS website for additional details on how to obtain one.

4. Open a Business Checking Account 

Opening a business bank account is a good way to treat your enterprise as a separate legal entity. Luckily for you, many banks also offer commercial services. This means that you can probably open a business account at the bank where you maintain your personal accounts. You could also choose another institution where you plan to take out a business loan in the future.

Having a business checking account is a great way to help you on your journey of establishing business credit. The process of getting a business loan will be easier if you have a business checking account at the bank your apply for a loan through.

For instance, once you are approved, the bank can just deposit the funds into your business checking account. No need to worry about setting up a wire or waiting for a check in the mail. If you do this, be sure the account is under your business name to avoid issues down the road. 

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5. Apply for a Business Credit Card

After a few months to a year, or depending on the bank rules, apply for a credit card. It should be noted that lending institutions may check your business’s capacity to repay its financial obligations. Getting a business credit card provides your enterprise with the extra funding vital for business growth and shows how responsible you are in handling your finances. 

With that said, a business owner should be careful in making cash advances or using their credit card. If mishandled, this business credit tool can backfire and may cause your organization to get rejected for a loan.

6. Make Sure You Pay on Time 

The last tip when establishing business credit is to make all of your payments on time. As mentioned earlier, you have to be responsible for handling your business finances. Apart from ensuring cash flow, you should strive to make payments earlier than the due date or on time.

This saves you from paying hefty penalty fees and reduces the risk of negatively impacting your business credit profile. As you may already know, a poor credit score won’t help your business secure much-needed loans from multiple lending companies.  

It also pays to review your credit file periodically to monitor how the credit bureau sees your business profile and improve your scores whenever problems arise.

Tips for Establishing Business Credit – Summary

Building business credit is essential. With this, business organizations will not only have access to the best loan products available, but they can also snag better business partnerships and secure lower insurance premiums.    

By knowing how to build your credit history and practicing financial responsibility, you will be able to ensure that your business will be in a better position to tackle expansion issues moving forward.

For more articles like this, visit the small business section of the site.

1 comment on “6 Tips for Establishing Business Credit for the First Time

  1. Pingback: How to Recover Your Credit Score After Bankruptcy -

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