How to Build Business Credit for a Startup

How to Build Business Credit for Startup

Let’s say that you’re planning to open your own café. You’ve designed your menu, enlisted the staff, and scouted an ideal place to set up. You’ve even got some money in the bank to cover equipment, and the first couple of months including utilities, rent, and salaries.

But, in order to efficiently and effectively manage the financials of your restaurant, you’ll need credit. If you don’t have credit, then you’ll need to make use of the cash you have to cover expenses when they arise, even before you’ve had the chance to make a profit from selling your coffees, scones, or croissants. What’s more, the cash you have may not be enough to sustain your business’s growth, particularly if your business succeeds. Businesses that are growing require time to generate positive cash flow. Credit means that your suppliers or service providers will be confident that you’ll pay them and be able to manage your company.

Below, we’ll go over the reasons business credit is vital, how having a great credit score can help your business, and the simple steps you can take to finance and expand your business.

What is Business Credit?

Credit allows you to purchase products and services, without having cash available to purchase them. Credit is granted by a creditor who trusts that the buyer pays the entire amount on a date. Business credit could, for instance, allow the establishment of a dining place which could be a lot more difficult if you were totally dependent on money you earned from your pocket.

There are a variety of kinds of business credit such as:

  • Small-business loans
  • Business credit cards
  • Vendor credit

Also read: 15 Finance Companies For Small Business Loans with Bad Credit score

How Business Credit Works

Let’s suppose you have a hat company and require raw materials and other items to create the items that you offer. You won’t earn any money from the hats you plan to sell until you’ve created and produced them. But, you won’t have the money to cover the creation and production of the hats until they’ve been sold. If you’re able to get business credit you are able to purchase hats later and pay for them you produce today. However, without it, it’s difficult to progress even if you want to.

If your new venture is destined to flourish and your credit score improves, it can in the path to success. Your good standing with vendors could aid you in purchasing more products Your business bank account will allow you to get access to the credit line and your excellent credit could give you better opportunities for loans.

What is the Impact of Business Credit?

In the majority of circumstances, your credit history will affect your ability to get business credit because credit card issuers and banks will scrutinize your personal and business credit history. If, however, you’ve completed the repayment of loans for your automobile, house, and educational expenses (or keep paying them back in time) you will get an advantage when you begin to build credit for business.

If your credit score is in decent shape for business credit, you’ll have to follow a few important actions: 1

  • Set up your business using your own address, name, and telephone number
  • Register your business with the IRS along with Dun & Bradstreet
  • Open business accounts through credit card businesses
  • Set credit terms with your current suppliers
  • Make sure you pay the bills on time, or even earlier
  • Be vigilant about your business’s credit rating and scores

Register Your Business

As long as your company is an entity of its own and is registered, you aren’t able to establish credit for business. It’s easy to do even if you’re only a sole proprietorship. Begin by establishing your name, and address along with a telephone number along with an email domain to represent your company. You can register your company with the IRS for the employer identification number (EIN) in addition to with an agency for credit report Dun & Bradstreet.

Registering for an EIN Number

An EIN can be described as a 9-digit array of unique numbers that are assigned to your business and utilized for tax purposes by authorities like the IRS in order to determine the identity of your company for tax-related reasons. With an EIN you are able to officially differentiate yourself from your company since you as an individual are identified by your Social Security number (SSN).

It’s relatively easy to obtain an EIN number. All you have to do is visit the IRS website, choose the type of business you have, and then fill out the form.

Registration for a Dun & Bradstreet Number

Dun & Bradstreet is a credit reporting agency that offers details to lenders and other companies. For this, the company uses the data universal numbers method (DUNS) numbers, which is a unique identifier with nine digits that it gives to companies.

Similar to the EIN number, the DUNS number can be an identification number that identifies your business as a separate entity distinct from you as a person. It’s also the number that is used by lenders or potential partners for business in order to assess the reliability of your business and financial security. In addition, the U.S. government also requires companies to possess a DUNS number in order in order to receive grants or conduct transactions directly with federal agencies. 2

You are able to request a DuNS number online The process itself is completely free.

Open Business Accounts

When you’ve got your address, address, and EIN or DUNS number, you’re now ready to begin opening your corporate bank accounts. If you decide to use a bank account, credit card, or both, you’ll quickly begin to build credit.

Bank Accounts

Business bank accounts provide numerous benefits that personal accounts do not. For instance, they can offer the power to buy, allow credit and debit cards to be used, and could include a line of credit and personal liability insurance. It’s crucial to know that banks won’t provide business accounts to anyone. You need to apply for a bank account (usually on the Internet) and could be required to furnish: 3

  • It is also known as your EIN (or SSN for sole proprietorship)
  • Business formation documents
  • A business license is required
  • The ownership agreements you’ve signed

Credit Cards

You can apply for a credit card for business with only your company’s EIN number. The idea is to distinguish your business from personal credit and there are some businesses that provide the EIN-only option for credit cards. However, the reality is that the majority of credit card businesses will request your SSN and verify your personal credit prior to granting the card.

Pay Your Vendors

The majority of businesses depend on their suppliers and vendors, so you’ll need to build positive relations as soon as you can. This means that you pay your suppliers punctually, each time. Based on the type of business you run and the type of vendor that you’ll work with are:

  • Companies that supply the raw materials needed to make your product
  • Business supply suppliers who store papers in your copiers
  • Suppliers of products who supply the items you sell in your store
  • Manufacturers that actually manufacture the products that you design

After you’ve built a solid connection, you’re able to think about building credit with your suppliers. The more you can build relations with your vendors the more favorable their reviews will be and the better your credit rating will be.

Also read: Top 10 Business Budgeting Software and Tools

Track Your Business Budget and Credit

When your company is getting started it will be necessary to control and monitor both your expenditures and revenue. Additionally, you’ll have to keep track of and manage your credit score. Both are crucial in keeping your credit rating good and avoiding any potential problems.

To manage your budget for business it is necessary to separate the personal and business financials. It’s fairly simple If you’ve already established business bank accounts and have applied to business credit cards.

For managing your credit it is necessary to buy credit reports from companies like Dun & Bradstreet and Experian. Although they aren’t cost-free, they’re extremely valuable because they supply you with details regarding:

  • Your credit report’s accuracy report
  • Any modifications to your report could affect your business
  • There are many opportunities to build your credit score
  • Potential identity theft
  • Organizations and individuals who are contacting you about your credit

How Business Structure Impacts Credit

If your small-scale firm is an LLC an S corporate, C corporation, it’s simple to separate your personal credit from business. But, as we’ve said credit report agencies will likely require your SSN to verify your personal credit prior to issuing credit to businesses.

In the case of a sole-proprietorship that doesn’t employ anyone or specific kinds of assets, then you have the possibility of using the SSN to identify your credit in any circumstance. If you choose to do this then, your credit score will be the only method an agency can decide if you’re creditworthy. Even if you’re a sole proprietor, you must create a bank account in your business’s name in order to keep your finances separate.


What is the Fastest Way to Build Business Credit?

To increase your business credit score first, establish your business as an exclusive company with its own address and name. You must register your business with the IRS for an EIN as well as Dun & Bradstreet for a unique DUNNS number. After that, you can apply for credit cards for business and bank accounts.

Can I Build Business Credit If I have bad personal Credit?

It's possible to get credit for business even in the event that you have poor personal credit, but it's not easy. This is because lenders and banks generally will require your SSN prior to offering credit. The best option is to fix your credit prior to applying for business credit. Another option is to consider applying for credit cards for business which accept the EIN of your company and don't need an SSN.

What Can I Do to Check my Business Credit Score?

You can determine your company's credit score by purchasing reports from Dun & Bradstreet and credit reporting agencies like Experian or Equifax. They aren't free, however, they offer crucial financial data. Free credit reports are mostly offered to individuals, not companies.

Written by
Barrett S

Barrett S is Sr. content manager of The Tech Trend. He is interested in the ways in which tech innovations can and will affect daily life. He loved to read books, magazines and music.

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