How to Get Business Credit for a Small Business

As a small business owner, you probably know that stellar personal credit is important when seeking low cost funds. But did you know that your business also has a credit score? Here’s what you need to know about business credit and why it’s important.

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What is business credit?

Business credit is a company’s ability to buy something now and pay for it later. By establishing a good business credit rating, you make it easier to borrow money and may open doors to greater amounts of capital.

Why keep business credit separate?

Just like personal credit, strong business credit can give you access to more affordable rates and longer terms when you’re looking for additional funding. Keeping your business finances separate from your personal finances means that one won’t negatively impact the other. For example, a late payment on a business loan won’t cause your personal credit to drop, and vice versa. This will also help you stay organized and on top of your finances so that you know exactly where income and expenses are coming from.

How do I build business credit?

Here are some of the key first steps you can take to establish and build your business credit.

Incorporate your business

Incorporation is the legal process used to form a corporate entity or company. A corporation is the resulting legal entity that separates the firm's assets and income from its owners and investors.

Corporations can be created in nearly all countries in the world and are usually identified as such by the use of terms such as "Inc." or "Limited (Ltd.)" in their names. It is the process of legally declaring a corporate entity as separate from its owners.

Creating a legal structure for your business, like a corporation or LLC, keeps your personal and business credit separate.

Get identification numbers

With registered ID numbers like EIN and DUNS, your business will have a unique identity that you can use to start building credit.

An Employer Identification Number (EIN) is a number that’s required when filing federal taxes and opening a bank account for your corporation or LLC. This “social security number” for your business helps set your company apart as its own entity. Apply for an EIN through the IRS.

Another key item is the Dun & Bradstreet (DUNS) number. This nine-digit ID number is assigned for each physical location of your business. Learn more about why your business needs a DUNS number here.

Business credit bureaus can then use your business’s EIN or DUNS numbers to generate credit scores based on its financial activity. For more in-depth information, review this post from the SmartBiz Small Business Blog: Why Does Your Business Need a DUNS Number?

Open a bank account for your business

Use your business’s legal name to open a checking account at your local bank. Then, make sure to use it for business-specific transactions. That way, you can build up your history with timely payments. This will also make tax time much easier as you’ll have all business expenses in one place. Documents you need to open a business bank account include:

  • Employer Identification Number (EIN) (or a Social Security number, if you're a sole proprietorship)
  • Your business's formation documents
  • Ownership agreements
  • Business license
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Get a business phone number

No matter if it’s a landline, mobile number, or online service, having a separate phone number for your business will allow you to register it in local directories and make it easier for potential customers to find you. You need a business number that strictly operates during your business hours. Having designated business hours is one of the greatest reasons to have a dedicated line to your company. Customers who call you after the business day will be greeted with a message.

You’ll also avoid wading through personal and business calls if you only have one number.

Open a business credit account

Open a credit file for your business with all three major credit reporting agencies. Lenders will use one or more of these reports to evaluate your business’s financial health, so make sure your information is up-to-date and accurate. The main credit reporting agencies in the U.S. include : Experian, Equifax, and TransUnion.

Establish credit lines with vendors

If you work with vendors or suppliers, you can build your business credit by opening accounts with them. Before you do, make sure they report payments to credit bureaus. That way, your timely payments will be reflected on your credit reports and lenders will have access to them.

Why should a small business have business credit?

Building business credit could lower your business insurance premiums and help you get approved for a low-rate business loan. It starts with establishing your business and applying for a business credit card.

Final thoughts

With strong business credit, you may be eligible for the “gold standard” in small business lending: an SBA loan. This low-rate, long-term financing can boost your business growth and help you achieve your goals at a low cost. At SmartBiz, business credit is one of the key elements that lenders look for when evaluating business applicants. For more information about the what the number means in the lending process, take our Business Credit Score IQ test on the SmartBiz Small Business Blog.

If you have strong personal and business credit, see if you pre-qualify for an SBA loan from a bank in the SmartBiz network in only 5 minutes here.

Not sure if your business stacks up? Before you apply, get started with SmartBiz Advisor* today to receive personalized recommendations and insights that will help you strengthen your lending profile and work on your unique business situation, free of charge.

* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

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