You just had the world’s best business idea. You worked out all the glitches. The only problem is you’ve built just one product, and you don’t have enough money in your business bank account to buy the materials needed to build more.
One option is to find backers who are willing to invest in your business and become co-owners. They’ll supply you with capital, but they’ll also take a share of your profit.
Another option is to secure financing and keep control of your company. That’s where your business credit history comes in. This guide shares the importance of building credit and nine strategies to establish business credit fast.
What is business credit?
Business credit is a company’s financial reputation and track record in terms of borrowing and repayment. It is assessed through factors such as payment history, credit utilization, and business credit score. Having a good business credit score can improve your ability to secure loans for your small business.
How does business credit work?
There are three major business credit bureaus that rank businesses and assign credit scores to determine their creditworthiness: Dun & Bradstreet, Equifax, and Experian.
These business credit bureaus use factors like your company’s track record on previous loan repayments, credit utilization, and the personal credit histories of your company’s owners to create credit scores and credit reports for businesses. Lenders use a business’s credit profile and score to measure the risk of lending to your company.
Does personal credit impact business credit?
Personal credit can impact business credit. Many lenders consider the personal credit histories of the business owners when evaluating the creditworthiness of the business, especially for new and small businesses. If you have a strong personal credit score, it can improve the likelihood of getting business loans and credit lines at favorable terms. On the other hand, if your personal credit score isn’t great, it can lead to high interest rates and unfavorable terms, and possibly even prevent you from getting business credit at all.
Maintaining a good personal credit score is important, as it can open up more financing options and prove credibility with lenders. However, it’s still important to establish a separate business credit profile for the long term.
How to build business credit fast
- Register your business
- Open a business bank account
- Register for a Dun & Bradstreet number
- Apply for a business credit card
- Keep your credit utilization low
- Register for relevant net 30 accounts
- Pay all bills on time
- Minimize risk by avoiding judgments and liens
- Monitor your business credit score
Establishing business credit can take several years, which can make it a daunting prospect—especially if you need to build credit fast. However, the following steps can raise your business credit score and get you on the right path. The sooner you start, the sooner your credit profile will grow.
1. Register your business
Before you apply for business credit, you need to register your legal business name with the appropriate government agencies.
The process for registering will depend on where your business is located. In the US, you may need to register your business entity at the local, state, and federal levels. Additionally, you will also need to get a federal employer identification number (EIN) from the IRS, which can be done for free on its website.
The length of the registration process will depend on the business structure you’ve chosen. Sole proprietor registration is the simplest and corporate registration is the most complex.
2. Open a business bank account
Opening a business bank account is the first step to separating your personal and business finances. It not only helps you manage your finances more efficiently but also contributes to building your business credit. This is essentially your first signal to the financial institutions that your business is a separate entity.
To open a business bank account, you’ll need things like business formation documents, your EIN, and any other relevant licenses or permits. You can open a business checking or savings account, depending on your needs and options. There are a number of banks you can sign up with both online and in person.
3. Register for a Dun & Bradstreet number
The Dun & Bradstreet number, referred to as the DUNS number, is a unique nine-digit number used to identify a business. Creditors in the US will ask for your DUNS number and your EIN before they agree to issue you any business credit. Many other countries use the DUNS number to identify businesses.
4. Apply for a business credit card
Business credit cards are a major asset when it comes to building credit. They function almost exactly like personal credit cards by allowing you to pay for your expenses using the card.
If you need to build your business’s credit fast, you can also get a prepaid credit card. It’s a quick and easy way to use a revolving line of credit and boost your business’s profile.
5. Keep your credit utilization low
Credit utilization is the ratio of your credit card balances to your credit limits—it basically represents how much credit you’ve used in relation to how much you have left available for use. Keeping this ratio low is essential for building and maintaining a healthy business credit score. A low credit utilization ratio means you don’t max out your limits and have space for more charges.
6. Register for relevant net 30 accounts
Another important way to build business credit is to register for net 30 accounts, which allow you to purchase goods for your business on credit. The debt for the purchased goods has to be paid back within 30 days.
Each supplier requires you to register for a separate net 30 account, so most businesses only register with suppliers that they expect to use often. Consistently paying off your net 30 accounts on time will build your credit.
7. Pay all bills on time
Another key to building business credit is paying bills on time and often. Every credited bill you pay out of your business bank account, including utility bills and rent, can contribute to your credit score. So long as you’re consistently making on-time payments, you should see your business credit score improve as the years pass. Don’t forget to follow this advice for your personal accounts, too!
8. Minimize risk by avoiding judgments and liens
Avoiding judgments and liens is crucial when building business credit, as it helps maintain a positive credit profile. A judgment is a court's decision on a legal matter, while a lien is a legal claim against a property to secure payment of a debt.
Judgments and liens can significantly impact your creditworthiness, making it difficult to increase your business credit score, secure financing, or establish favorable business relationships.
9. Monitor your business credit score
Monitoring your business credit is crucial for financial health and growth. It helps identify errors, detect fraud, track creditworthiness, and ensure favorable terms for startup loans and partnerships.
You can use tools like Dun & Bradstreet CreditSignal and Nav, both of which have free and paid options. Typically, the free tools won’t give you access to your full business credit report, but they can provide alerts and summaries of changes to your business credit profile.
4 reasons to build business credit
Good business credit isn’t just nice to have. A strong credit history is something necessary that you’ll lean on to do any of these things:
1. Get access to funds
Business credit is a simple way to access funds you can invest in your business. From product development to acquiring other businesses, it’s easier to getcapital through financial arrangements like a line of credit (LOC) if your company has a good business credit file.
2. Protect ownership
Unlike seeking out investors, securing capital through business credit—such as a pay-in-full business card like Shopify Credit—doesn’t affect the ownership of your business. You can grow your business without trading equity.
3. Protect personal credit
Personal credit impacts your ability to get personal loans like mortgages. Separating personal and business credit cards gives you an added layer of protection. If your business struggles to repay its loans on time or has bad credit, this will likely have less impact on your personal credit score.
4. Build business credit for the future
Even if you don’t need business credit to access money right now, there’s a chance you will in the future. Building a strong business credit account can give you better borrowing opportunities in the long run.
How does business structure impact credit?
There are different kinds of business structures available to businesses, and each has different obligations when it comes to credit.
- Sole proprietor: Sole proprietorships are businesses owned by a single business owner who is solely responsible for the business’s debts. Should the business go bankrupt, creditors are allowed to seize the personal assets of the business owner.
- Limited partnership (LP): Limited partnerships consist of multiple owners, of which only those designated as general partners are personally liable for business debts. The other partners are called limited partners. They have less control over how the business is run but are not personally liable for its debts.
- Limited liability partnership (LLP): In an LLP, all owners of the business are considered partners, and they all have at least some liability protection in the case of negligence or misconduct by other business partners. However, whether the owners are completely protected from personal liability in the event of their own negligence varies from state to state.
- Limited liability company (LLC): An LLC is a business structure that shields a business owner’s personal assets from any claims made against the business. LLCs are required to pay special fees to both national and state governments to operate, making them more expensive to maintain.
- Corporation: In a corporate business structure, shareholders are not liable for the company’s debts beyond the amount of money they have invested. However, unlike LLCs, creditors can sometimes claim the company’s assets in the event of a default, wipe out shareholders’ voting rights, and change the leadership of the company.
Types of business credit
- Vendor credit
- Supplier credit
- Service credit
- Retail credit
- Business credit card
- Merchant cash advance
Vendor credit
Most businesses need to purchase equipment, materials, or inventory from a vendor to accomplish their goals. For example, the owner of a restaurant will need to buy ingredients used to prepare meals.
Sometimes, large vendors may allow business owners to create what’s called a “net 30 account.” A net 30 account gives a business the opportunity to buy materials on credit with repayment expected within 30 days. Many small businesses use these purchases as a way to build business credit.
Supplier credit
Supplier credit involves credit from suppliers to business owners buying inventory or materials for their businesses. Also referred to as trade credit, this type of business credit usually refers to longer-term and more complex agreements than vendor credit. They’re often used in international imports and exports.
Service credit
This is business credit issued for services used by the company owner. Examples include utilities like electricity, gas, water, and internet.
Usually, both businesses and individuals pay utility bills after services have been issued at the end of the month. Paying service bills on time can help improve your payment history and build your business credit score.
Retail credit
This is a way to borrow that’s easily available to the public. Examples include bank loans, mortgage loans, and credit card loans. The better your business credit score, the more of these loans you will be able to access.
Business credit card
One of the most common ways to build business credit is through business credit cards, which allow you to pay for expenses with a single card and pay the bill at the end of each month.
Many business credit cards are available to companies with little or no business credit history, which makes them an option for new business owners. However, there are credit limits for new businesses and high interest rates if the balance on the card is not paid off in the current billing cycle, which is usually 30 days.
Shopify Credit, for example, is a pay-in-full card for your business. You can use it for everyday purchases and get cashback rewards you can reinvest in your business—with no annual fees and no credit checks.
Merchant cash advance
A merchant cash advance (MCA) is a temporary business funding solution that can come in handy if you have dips in sales and don’t have enough cash flow to keep the lights on. You can then apply for a MCA which will provide a lump sum of cash on the assumption that your business will make future sales.
Pros of this option are that it’s a quick and flexible way to get cash. However, it won’t help you build any credit. MCAs aren’t loans—and they’re not subject to the same regulations as a result. However, it’s still an easy funding option if cash flow is your main concern.
Start building your business credit today
Use the strategies outlined in this article to improve your business credit report. From registering for a DUNS number to applying for business credit cards, you’ll soon start to see an improvement in your business’s credit score—and increase the likelihood of being able to secure financing for your company.
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Business credit FAQ
How to build credit with an EIN number?
To build credit with an EIN, first ensure your business is legally registered. Then, open a business bank account, secure vendor accounts that report to business credit bureaus, and consistently pay invoices on time to establish and improve your business credit score.
What is the fastest way to build business credit?
The fastest way to build business credit is to incorporate, register with Dun & Bradstreet, and open business bank and credit card accounts. Put some charges on those accounts and make your payments on time. This will help you build business credit fast.
How does small businesses get credit?
- Applying for an EIN
- Registering with Dun & Bradstreet
- Incorporating as a business entity
- Opening a business credit card
- Making payments to accounts payable
- Taking out a business loan
How can I build my business credit in a month?
- Apply for a business credit card.
- Keep your credit utilization low.
- Pay bills and suppliers on time.
- Avoid judgements and liens.
- Register for net 30 accounts.
Does an LLC have its own credit score?
All businesses, including LLCs, have their own business credit scores. However, the personal credit scores of the owners of the LLC can have some impact on the business credit score of the LLC, and vice versa.
Is it hard to build business credit?
It is hard to build business credit if you’re a small business, since the process takes time. Prove your business can be trusted with loans by applying for a business credit card, paying bills on time, and registering for a Dun & Bradstreet number.
How fast can I get business credit?
This depends on many factors, including your business structure, the personal credit of you and any partners, and the business’s cash flow. For new businesses, it usually takes between one to three years to build enough business credit to be eligible for loans. If you continue to pay back your loans on time, your business credit score will continue to grow.