What is Business Credit and How Can I Build It?
Updated: Oct 18
Just like consumers can have credit cards, businesses can also have credit cards for company needs.
And just like consumers have credit scores, a company has “business credit.”
Simply put, business credit is a rating that signals your company’s ability to manage its finances, purchasing power, and debt.
Having high business credit will result in many benefits for your business.
In addition to paying lower interest rates on a business credit card, you might also experience lower rates for goods and services.
For example, it’s not uncommon for insurance premiums to be noticeably lower for business owners with high business credit. If you need to negotiate financial terms with a lender, they are more willing to work with you. And if you need to take out a business loan or line of credit, your terms will be favorable.
Now that you understand what business credit is, your next question is probably: then how can I get it?
How to Get Business Credit
The base requirements for getting business credit is the same for small businesses as it is for major corporations. The first step is to legally establish your business. Not only does this provide tax advantages and help protect you from personal liability, it also gives you the ability to qualify for business financing.
Register your business in your state. In most states, the best option will be to set up an LLC or corporation.
Request an Employer Identification Number (EIN) from the IRS. The easiest way to think of an EIN is to view it as the business equivalent of a Social Security Number.
Open a business checking account. Even if you’re a small start-up business, it is best to have a separate, dedicated account for your business.
When you finally have business credit, you will want to build it. Similar to personal credit scores, your business credit will determine your loan and credit rates.
Since access to credit is critical to scale your business, it’s important to make sure your business credit is as strong as possible.
How to Build Business Credit
Business credit is not built overnight.
Remember, banks and lenders view business credit as an indicator of your financial trustworthiness. Part of what makes a business trustworthy is consistency over time. This is a long-term journey.
Building business credit is similar to building your personal credit score, but it’s a lot more thorough.
Just as you had to go through more steps to open a business checking account, there are more layers of details when it comes to your business credit.
For example, when it comes to personal credit scores, one factor is whether you paid on time or paid late. It’s a binary choice.
But when it comes to business credit, it’s not just whether or not you paid on time. Other details such as the date and time of the payment are taken into account. Pay on time — early, if possible. This could help you build your business credit more quickly.
Another step you should take to build business credit is to make sure your account is reporting to the various business credit agencies.
Think of it this way: there isn’t just one credit score authority. You can go to different organizations to get your credit score, and they will all slightly vary based on their own formulas.
Similarly, there are different business credit agencies. Here’s where things get tricky: not all vendors report to all credit agencies, so make sure your business lenders and credit card issues are reporting appropriately.
In general, to build business credit:
Pay on time, early if possible
Pay off the entire statement, if possible
Keep a low credit utilization
Finally, it’s important to regularly monitor your business credit reports.
It’s not just about ensuring accuracy. It’s also ensuring that there is no fraudulent activity on your business accounts. That’s right: identity theft and fraud isn’t just limited to consumers. Businesses can be victims, too.
You’re more likely to catch criminal activity early if you monitor your business credit reports. The good news? If something did happen, you can file a dispute with the respective business credit bureau. After proving your case, your score will be updated to reflect your credibility.
Having good business credit is vital to your company’s health. It also ensures that you have the resources to scale, handle setbacks, and overcome challenges.
If you’re interested in improving your business credit, you will want to organize and streamline your workflows. A well-structured business indicates strategic organization, which is what lenders and creditors want to see.
Exceptional Services Agency is a business development agency that can help you scale and drive revenue growth to new heights. We can help you with everything from improving your business credit to helping you implement lean process improvement.
Ready to get started? Schedule your free demo today!