Business Credit » 9 Simple Steps To Build Business Credit

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9 Simple Steps To Build Business Credit

Build business credit with no personal guarantee with this step-by-step process.

As soon as you establish your business, you can start establishing your business credit. The earlier you begin, the sooner you can reap the benefits. However, it’s crucial to ensure that you have established your fundamental business information, such as your business name and address.

In this article

1 How to Build Business Credit

2 Why it’s important to pay invoices before the due date

3 Business Experian Credit Report

4 How long does it take to build business credit

How to Build Business Credit

1. Establish a business address

Business owners with an office or retail location already know this but a business address lends credibility to your business. Plus, financial institutions and merchant services may not recognize residential or PO Box addresses as valid business addresses. While a home address may be used as your business address it can result in legal risks and privacy issues.

More importantly, if building business credit without a personal guarantee is your goal, then using your home address may create some roadblocks.

Here are several options for creating a business address separate from your home address:

UPS Mailbox service. Mailing address through United Parcel Service (UPS) will give you a real street address instead of a post office box number.
Co-working space. A co-working space is a shared working environment where sole-proprietors, entrepreneurs, and small businesses can work in a communal setting and receive business mail.
Virtual Address. With a virtual business address, you can have a distinct physical address for your business, and the on-site administrators will handle your mail by sorting and distributing it to you. Depending on your preference, you can opt to receive your business mail through various methods, such as mail forwarding, on-site pickup, or mail scanning.

The key information in establishing a business address is consistency. Consistent use of whichever business address you choose helps maintain your business information integrity. Use the exact same address on every business document, application, bank account, form, magazine subscription, catalog…you get picture. You are establishing a business identity.

2. Decide the Business Legal Structure

To begin establishing business credit separate from personal credit you must structure your business as a corporation or limited liability company (LLC). It is best to consult a professional such as an attorney or accountant to make the best decision. Here are the most common ways to structure a business:

C-Corporation
S-Corporation
Limited Liability Company (LLC) and Partnerships are the most common
Sole proprietorships do not create a separate business entity

When you register your business as a legal entity with the relevant state agency, it will help build your business as a separate legal entity from yourself enabling you to apply for business credit in the business’s name.

3. Obtain the necessary licenses and permits

Obtain required business license, permits or registrations in the city or jurisdiction where you do business. When starting a new business always register your business name, even if it is a home-based business. Registering your business name locally allows you to see if someone else has registered a business in that same name. But more importantly, certain business structures call for licenses and permits from the county or city in which your business is located.

4. Get your business phone number listed

It’s important to obtain a professional and separate business line as soon as possible, and take steps to have your company phone number listed. This way, you can begin attracting new customers along with building your business credit profile.

Here are a few places to get free basic business information made available online:

5. Obtain an Employer Identification Number (EIN)

You will need to start business credit with an EIN. An Employer Identification Number (EIN) is a unique identifier assigned by the IRS to your business for tax purposes. You can obtain an EIN by completing an online application on the IRS website.

6. Get a professional website and email address

Your business should have its own website and email address. A website helps to establish your business presence. It also acts as an informational tool. The website does not have to be all bells and whistles. Something professional and simple is sufficient.

7. Open a business bank account

Open a separate business bank account to keep your business finances separate from your personal finances. This will also help establish a relationship with a bank or credit union that may offer business credit. The business checking account should have the exact legal name and address of your business.

Some online business checking accounts can be opened with no minimum deposit required. Your business banker will be invaluable to you at some point so its important to choose a bank where a long term relationship can be built.

For business owners with ChexSystems records, you may want to consider business checking accounts that don’t use ChexSystems.

8. Get a Dun & Bradstreet Number

Dun & Bradstreet is the largest tracker of business credit. There are other business credit companies, mainly Experian Business and Equifax; however, Dun & Bradstreet is probably the most widely used company in the industry.

The DUNs number is a nine-digit identification number that provides unique identifiers of business entities. The importance of a DUNs number relates to your business credit score called PAYDEX.

Your PAYDEX credit score is connected to your DUNS number, and it is one of Dun & Bradstreet’s credit scoring systems for businesses. The PAYDEX score, which ranges from 0 to 100, is determined by your payment history as reported by suppliers. This information is used to evaluate the likelihood of your business paying back loans and other debts promptly.

You can apply online for at Dun & Bradstreet for a DUNs number free of charge but it may take up to 30 days to receive. The expedited service for a DUNs number will cost you $229 but it will be available within 5 days.

Before you apply for a DUNS number, check to see if your business already has one. You can check at the D&B D-U-N-S Number Lookup page.

9. Begin to apply for business credit

At this point you are ready to build business credit. Business credit that is not co-mingled with personal credit provides several protections to you and your business:

First, should your business be sued, your personal assets are protected.
Second, the “corporate veil” does not exist when personal finances are co-mingled with your business finances.
Third, lenders may limit funding if your personal liabilities are lumped with business liabilities.

Many small business owners believe they must provide a personal guarantee to obtain business credit. A personal guarantee means the business owner assures repayment of a business debt with personal assets, if the business defaults on the debt. The personal assets to repay the debt could be cash, investment securities, notes, real estate investments, your personal residence, copyrights and even shares in a closely held corporation.

A personal guarantee will tie your personal assets with your business debts.

Here are several companies that will open new business credit accounts without a personal guarantee and report payment history to business credit agencies:

Grainger – Industrial and safety products
Uline – Packaging, janitorial, food service, safety warehouse supplies
Summa Office Supplies – Office supplies
Office Garner – Apparel, offices supplies, electronics, website design, business cards and more
JJ Gold – Corporate gifts, personal care and cosmetics
HD Supply – Products for the business professionals in maintenance, repair, and operations
Newegg Business – Variety of technology products and solutions

It’s worth noting these companies are primarily Net-30 accounts. With Net-30 day business credit accounts you promise to pay the total amount due within 30 days of the invoice date. In essence, it’s a short-term credit agreement that allows businesses to obtain goods or services on credit and pay for them later. Many vendor accounts report to business credit reporting agencies, which means paying on time can help build your business credit profile.

Why it’s important to pay invoices before the due date

Business credit can be Net 20, 30, 45 or 60 days which means you pay the balance in full within that time-frame.

If you don’t have the cash to pay the bill in full wait until you do to use the new account. On the other hand, if you have a good amount of cash on hand, use the credit generously and pay the invoice before the due date. This will help establish a good PAYDEX Score.

PAYDEX score of 90 or above based on your payment history. You should have at least 5 accounts paid in full before the due date in order to establish the best PAYDEX score.

Business Experian Credit Report

Experian is another major business credit reporting agencies that provides information such as a business’s credit history, payment history, credit utilization, public records, and legal filings.

The report also includes a credit score, known as the Experian Intelliscore Plus, which ranges from 1 to 100 and predicts the likelihood of the business making timely payments.

Business owners can monitor their business credit report regularly to ensure that the information is accurate and up-to-date, and take steps to improve their credit profile if necessary.

How long does it take to build business credit

It could take a few months for new accounts to show up on your business credit reports. After that, you will need to make several months of timely payments to establish a favorable business credit score. Regardless of whether your business is new or well-established, following the measures outlined above can assist you in developing a strong business credit rating in a matter of months to a year.

No matter how tempting establishing new business accounts may be, apply for new credit sparingly. A few applications every 30 to 60 days is sufficient. Avoid applying for several accounts at one time. You may get your business credit profile flagged!