Building Business Credit
Establishing business credit is a crucial step for any small business. Hua Law Group, PLLC can help any small business get started on the right track and build business credit. Doing so helps you maintain a credit history separate from your personal credit history and further separates the individuals from the business.
Building Business Credit – A Guide
- Form your Limited Liability Company (LLC) or Corporation.
This first step is crucial to both the law and in the eyes of lenders. It creates a separation between the business and the owners. The newly established business will have a ‘blank slate’ when it comes to establishing credit scores and ratings.
While operating a sole proprietorship or a partnership may be easier in terms of starting up and managing paperwork, these entities are considered unincorporated. This means they are not separate from their owners and there is no legal or financial difference between the owners and the business.
- Obtain your Federal Employer Identification Number (FEIN) from the IRS.
The EIN is the equivalent to the Social Security Number of the business. It is usually required to open any business bank accounts and on all federal tax filings. You can find more information about the EIN on the IRS website, https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers.
Credit reporting agencies will use the business EIN and DUNS number (discussed further below) to keep track of the business credit history.
- Open a business bank account in the name of the LLC or Corporation.
To build your business’s independent identity, you want to use a business bank account for business purposes. Use your business bank account to operate your business and your personal bank account to pay for your personal expenses. Be mindful not to mix and mingle funds. This can diminish credibility to potential lenders.
- Obtain a Dun & Bradstreet (DUNS) Number.
Dun & Bradstreet is the most popular business credit bureau whose scores and reports are used in most trade applications. The DUNS number is a unique identifier for every business. You can find more information about the DUNS Number on the Dun & Bradstreet website, https://www.dandb.com/free-duns-number/?utm_source=sbh&utm_medium=content.
- Establish a business phone number and online presence.
Use a landline, cellphone, or VOIP, separate from your personal number, in your business’s legal name. List this number in a directory so that it can be located.
While a website is not required, it will be helpful when potential lenders are deciding whether or not to extend a line of credit. Nevertheless, you should establish an online presence for your business by listing it with online directories.
- Open a business credit file.
Open a business credit file with all three business reporting agencies: Experian, Equifax, and TransUnion. This will jumpstart the agencies and have them prepared to keep track of the new business.
- Obtain a bank loan or credit card.
If the business has no credit history, the loan might be small but the ability to borrow responsibly is key. Loans can also come by way of establishing a credit card in the name of the business. Make sure the loan or credit card is not linked to you personally but to your business, and choose a credit card company that reports to the credit reporting agencies.
While you may have to personally guarantee your first loan or credit card, this will help lenders trust you. Paying this back responsibly and keeping a solid history of this will help future lenders make the decision to lend the business more money and build the business credit.
- Apply for third-party lending.
Seek lending from other sources, including online lenders and even from specific stores. Be sure to choose an online lender that reports to the national credit bureaus because not all do. For example, Fundera, BlueVine, Kabbage, and OnDeck, report to credit bureaus. Contrarily, Fundbox, SmartBiz, and Lighter Capital do not.
- Open trade lines or lines or credit with vendors and suppliers.
Another way to quickly build good business credit is to establish and maintain good relationships with vendors and suppliers. Just as with your personal credit rating, your business credit score will build as you work with a variety of lenders and suppliers, assuming you maintain a good relationship with them. Paying your vendor or supplier on time (or maybe even early) will help your business credit score.
Make sure you ask your supplier to report your payment history to the business credit bureaus. As long as you pay on time and in full, you’ll boost your business credit score. You can get accounts with big retailers such as Best Buy, CostCo, FedEx, UPS, Staples, and Home Depot.
10. Borrow responsibly and pay on-time.
Don’t apply for all your business loans and lines of credits all at once. Make sure you space them out and pay your existing accounts on time.
Lenders want to make sure they get a return on their investment, namely their investment in your business. Failure to make timely payments can lead to them submitting negative reports to the business credit agencies. A history or delays or defaults can seriously hinder or even prevent your ability to obtain future credit from other lenders.
- Monitor and keep your information current with the bureaus.
Keep track of your business credit score and reports. New information and reports will affect yours scores and ratings. To avoid costly surprises or mistakes, business owners should regularly check their company’s scores and immediately report any discrepancies.
Also be sure to monitor any inquiries being pulled on your credit reports. Businesses can inquire on your credit file to determine if you company qualifies for a loan or can be trusted with a contract. Anything unexpected or suspicious should be closely monitored.
The Hua Law Group, PLLC can help you with the entire process. Through its partnership with US Financial Development, Inc., a Business Credit Building and Lending expert, new businesses and startups can receive between $25,000 and $250,000 in business lines of credit with lenders that only report to business credit reporting agencies. This provides the business owner with: protecting their personal credit, building their business credit, providing access to cash and credit, and establishing multiple banking relationships for the business. USFD uses a comprehensive 20-point compliance system and ongoing monitoring to make sure your business credit is set up the right way. Ask us how to get started at email@example.com.