Many decisions made early on when launching a business will affect its ability to succeed and grow over time. A prime example is the decision to focus on building and maintaining good credit.

In some ways, business credit works similarly to personal credit. A handful of business credit ratings agencies will evaluate your business and produce a credit report and a credit score that provides a numerical representation of how likely your company is to repay the money it borrows.

The benefits of good business credit

Having a good business credit score indicates to lenders, potential business partners, and other stakeholders that your company is financially reliable and well-managed. This can benefit your business in several ways, including:

• More flexibility and access to capital if and when you need it
• Lower costs of borrowing (better rates are offered to businesses with good credit)
• Reduced insurance rates
• Better relationships and terms with your suppliers

It can also make it easier for you to rent or buy office space, equipment, or vehicles needed to grow your business. 

Useful for growth and stability

Even if you’re able to bootstrap your business with your own funds to launch, if you have plans to scale, you’ll likely need to borrow money at some point in the future. Credit allows a small business to increase their purchasing power (e.g., to buy extra inventory ahead of the holidays) or take advantage of business opportunities (such as purchasing a competitor).

Depending on the business you’re in, you may also need a line of credit throughout the year to help with cash flow during slow periods. More than one-third of businesses sought financing in 2021, with more than 60% of them doing so to meet operating expenses, such as wages, rent, and inventory costs.¹

Separating business and personal assets

Having good business credit can also mean no longer having to put your personal credit (and your personal assets) on the line when you borrow on behalf of your business. Building this financial insulation between your personal and business finances is especially key in emergency scenarios or during unexpected events when you may need to borrow funds. 

How to start building business credit

Keep in mind that building credit — as a business or an individual — is a process that requires both time and dedication. With that in mind, here are five steps to get you started building credit for your business: 

1. Establish your business profile. The first step toward building credit for your business is setting it up as a legal entity and getting a business bank account. To do that you’ll need to register with your state and determine the structure of your business (i.e., whether its’s sole proprietorship, partnership, or a limited liability corporation). That process will get you an Employer Identification Number (EIN), which is like a Social Security Number for your business.
   
   You’ll also want to get your DUNS number, which is a unique identifier given to each of your business’s locations when you register with Dun & Bradstreet, the largest business credit agency in the United States.
   
   
2. Separate your business and personal accounts. Now that you have formed a business profile, open a business bank account and route all business-related transactions through it. In addition to helping build your business credit, having separate business and personal accounts protects your personal credit and makes record-keeping easier.
   
   
3. Apply for business credit. You are now ready to apply for a loan, line of credit, or a business credit card to establish credit in the name of your business. (You may have to provide a personal guarantee initially.) Even if you don’t need access to additional capital, using a business credit card each month for everyday business purchases (and paying them off in full when the statement comes) is an easy way to build your business credit. 
   
   
4. Automate your bills. Paying bills on time is an important component of good credit. Setting up any of your recurring bills to auto-pay will ensure timely payments and decrease errors that can negatively impact your credit score. While it’s still important to regularly check bill payments for mistakes or fraudulent activity, automation can also free up your time to focus on other aspects of building your business.
   
   Ideally, you want to pay off all charges every month. If that’s not possible, because of cash flow issues, you still want to keep your revolving credit (the amount you owe on credit cards) as low as possible. The percentage of available credit that you’re using is a key indicator that business credit-rating agencies look at when determining your credit.
   
   
5. Establish different types of credit, and monitor it regularly. In addition to loans, lines of credit, or business cards, it can benefit your business credit to have other types of credit accounts. For example, you may be able to open a vendor credit account where a supplier allows you to pay on net 30 terms. Check credit reports for your business consistently to ensure your businesses credit activity is being reported accurately, and to monitor for fraudulent activity.
   

Building credit is an important step for a growing business. One letting banks, lenders, and vendors know that your business is a viable, creditworthy partner.

For credit building and other business needs that fall outside the typical day-to-day, we can help you find a solution.