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Best Ways to Establish a Strong Business Credit

Anne Miller

Anne Miller

Senior Author

Anne Miller

Senior Author

Every small business owner always tries to figure out how to get external business credit and financing in order to expand and realize further goals of growing. These are also required to cover start-up costs and a strong credit profile along with diverse accounts can certainly make or break a business’s immediate as also future plans.

Best Ways to Establish a Strong Business Credit

The Importance of Business Credit

Before getting into the ways and methods of establishing business credit, it’s important to know what business credit is all about and what its benefits are. A strong credit score always help all businessmen to secure lower rates of interest on loans, decreases instances where prepayment for specific products or services are required, and to secure stronger and better trade terms with key vendors in the industry to which you belong.

This inevitably saves money in the long run and makes access readily possible to assets or funds the business needs to grow. Moreover, for those who deploy personal assets to fund their businesses, establishing a business credit helps them draw a perfectly clear line between their personal and business finances.

Steps to Establish Business Credit

You need to remember first that establishing strong business credit requires careful planning, coordination, time, and effort and simply doesn’t happen overnight. These following tips will however, guide you in establishing the required business credit while bringing your plans to fruition:

Make your presence felt: In other words, put the business on a map by establishing yourself first. A just started venture or about-to-begin venture doesn’t qualify for being on the map. This requires getting an EIN or federal tax identification number; a proper business address and phone number listed in the local directory and a bank account in the official business name to use it to receive revenue and to pay all bills.

Good relationship with vendors: A solid credit line with relevant vendors is worth gold! The more solid the relationship, the greater are the chances of upfront paying for supplies and/or services. Once you secure a credit line for at least 30 days with about 5 major vendors who report such payments to credit reporting agencies, you will be able to establish a highly positive history of business credit.

Again, not every lender and vendor reports to every commercial credit agency. For instance, the issuer of your business credit card might report to D & B and not SBFE and you won’t know it unless you see your reports. This makes it all the more necessary to constantly check all your credit scores and reports with multiple credit reporting agencies to know if your personal accounts are enhancing your scores. If not, then you should consider adding some more credit references.

Timely payment always: This is the golden rule for establishing credit. When you pay your bills timely, it shows your reliability as a debtor. Late payments, particularly delinquent ones, inevitably lower your credit score and thus, impact your credit profile negatively. For those who pay before their credit period expires, “extra credit” is also given because payment information reported on business credit statements is more detailed often as compared to reports pertaining to personal credit. Paying faster and earlier helps you build your business credit scores more quickly.

  • Business Credit Cards: Getting a credit card strictly for business purposes with an issuer which reports to all the leading credit reporting agencies helps greatly in establishing positive business credit. In fact, having multiple business credit cards is an additional advantage but you must be cautious to avoid over extend business finances. Because you have the credit does not mean you should make full use of it.
  • Getting incorporated: You have to get incorporated at any cost. Once the business has an LLC or Inc to its name, you are actually segregating the business from your personal profile. If this isn’t done, then the business and your personal credit history stand to get legally attached.

Separate commercial expenses from your personal finances: As you take credit cards & lines and open separate bank accounts in the business’s name, you’ll be clearly separating your professional and personal identities. Moreover, by separating expenses, you also get to manage taxes easily.

Perpetually monitor credit: Nearly 25 percent of small and medium business owners report glaring errors on their personal credit reports. That’s why diligent monitoring of all credit history helps in immediately spotting any inaccurate blemishes or issues. Should you find any errors, make sure to dispute it with your reporting agency right away.

The crux of the issue is that everyone loves a prompt debtor who pays his dues on time. If you wish to be categorized as one, you need to follow the above mentioned steps diligently. Remember, once your credit is established, you have everything to gain and nothing to lose. Most importantly, it is the trust of your business associates without whose help, support and contributions, neither can you do business nor can you make it grow.

History has shown us time and again that those businesses with tarnished credit histories have either failed miserably or got themselves immersed neck deep into legal hassles in the long run lading to even their promoters getting jailed or heavily penalized by law. Enron is one such burning example and needs no further explanation. When you fail to pay your dues, it not only constitutes a criminal and illegal act but amounts to breach of public trust as well. This in the eye of law, is a grand offence and will always carry with it the stiffest penalties.

That’s why to be o the safe side, pay your dues and earn your respect within the business fraternity and the industry to which you belong. Remember, a tarnished image never pays in the long run and does more harm than good. And it certainly wouldn’t augur well for any business, be it a startup or an established one.

Anne Miller

Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.


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