Having excellent business credit is essential for many reasons, and yet it is very rarely talked about.
It can help you access financing at a better rate, acquire more beneficial insurance, or even help agree to stronger terms with suppliers, all crucial aspects for funding a startup.
Here, we will show you how to build business credit fast and securely.
Short on time? Here’s a quick breakdown:
- Your business credit score can significantly impact what lenders will work with you, your loan terms and conditions, and even which customers purchase from you.
- Personal credit and business credit are very similar, apart from the fact that anyone can request access to your business credit score.
- Providing transparency and clarity over past payments to suppliers or vendors helps build trustworthiness with credit bureaus, which will improve your score.
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Business Credit: Why It’s So Important
As you may already be aware when you start your business from scratch, it gets its own credit score, which is completely separate from your personal credit score.
Anyone can view it, meaning lenders, suppliers, or potential clients can check it. A poor business credit score could therefore have a significant impact on every aspect of your business, from loan agreements, supplier contracts, and the quality of customers you attract.
How Does It All Work?
Fortunately, business credit works similarly to personal credit in the sense that your business can report payment history to credit reporting agencies, and that information can be purchased by potential lenders, suppliers, or customers to establish whether they want to do business with you.
However, there are a couple of key differences between personal and business credit.
The most notable difference is that anyone can request a credit report for your business, unlike personal credit scores, which are much more restricted.
Improving Your Business Credit Score
Much like improving your personal credit score, building up your business credit score does not need to be a complicated process.
Keeping your debt levels manageable and making payments on time goes a long way to ensuring your business’s credit score is more than satisfactory.
That said, there are a few things small business owners should also do to ensure their business credit score continues to improve, even if the business isn’t making money in its early days.
Building Business Credit: Step-by-Step
Build your foundation: When credit bureaus set your credit score, they want to see that your business is set up properly and professionally. That includes getting a business phone number, a professional email address, and a business address and making this information visible on your company website.
Register your business: Next, it’s important to register your business as an S Corp or LLC to ensure you are set up for annual filings (Note: business registration varies depending on your country or region).
Acquire a D-U-N-S number: While Equifax, Creditsafe, and Experian all automatically identify your business, you need a DUNS number to identify your business with Dun & Bradstreet, another important credit reporting agency.
Report your bills to business credit agencies: Now credit agencies have your business details, it’s important to provide them with information on how and when you pay your bills. This past payment history helps improve your trustworthiness and, therefore, your credit score.
Set up a business credit card: Another great way to establish business credit quickly is by setting up a business credit card. By spending on your business credit card and paying off your debts at the end of each month, you show credit bureaus you can be trusted to pay off larger loans, which helps quickly improve your credit score (Note: there are a number of small business credit cards on the market that you can shop).
Pay on time: As you have probably already realized, ensuring you pay any debts on time is non-negotiable. Business credit bureaus have a system called “Days Beyond Terms” (DBT), which calculates how late payments are, which significantly impacts your credit score in a negative way.
Frequently Asked Questions
What is the fastest way to get business credit for an LLC?
The fastest way to get business credit for an LLC is to establish a strong credit history by opening accounts with vendors who report to business credit bureaus and responsibly managing those accounts.
How long does it take to establish business credit?
The time it takes to establish business credit varies, but typically it can take at least six months of actively using and managing credit accounts for an LLC to start building a credit history.
Does your personal credit score impact your business credit score?
Generally, personal credit scores and business credit scores are separate entities, but in some cases, personal credit history can indirectly influence a business credit score, especially for small businesses where the owner's creditworthiness may be taken into account by lenders.
What is the starting credit score for a business?
There is no universal starting credit score for a business, as business credit scores can vary depending on the credit reporting agency and scoring model used, but some scores range from 0 to 100, with higher scores indicating better creditworthiness.
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