Building Business Credit

Entrepreneurs and individuals just starting up in business often find it hard to raise the finances they need to get started. The chances of securing a small-business startup loan remain a challenge. Consequently, many depend on personal credit cards or loans secured against personal assets. However, this is a risky approach since you assume total liability if the business fails.

“Nobody does a good job of providing financing to startup businesses, because it’s the highest risk out there,” says Charles Green, founder of the Small Business Finance Institute. “You may have big ideas and plans in place, but you haven’t launched yet.”

The best practice is to build a business credit profile without putting your personal credit at risk. Find companies that will establish credit for your business without using your personal credit information; then, report the payment experiences to the business credit bureaus.

Before applying for credit make sure the following are in place/up to date:

• Corporate records;

• State filings;

• Business licenses/permits;

• Employer Identification Number (EIN);

• DUNS Number—business’ credit profile number issued by Dun & Bradstreet;

• Company’s phone number listed in the 411 directory;

• Professional business plan, financial statements, and other company documents;

• Company bank accounts—standard checking and savings.

A quick note about company documents: Quoting changes in regulations that came into effect April 2018, one bank required details of operating agreement, articles of incorporation as well as information from a business plan and financial statement to open business bank accounts.

After you meet these requirements, you will be ready to apply for credit. The best place to start is with your suppliers. Many types of suppliers—including major brands—extend lines of credit to businesses. Several credit bureaus collect this data. From the information, they create your business credit scores. The main bureaus are Dun & Bradstreet, Experian, and Equifax.

Unlike personal credit reports, anyone can look at your business credit report. You need at least three trade lines to get a Dun & Bradstreet Paydex score, which measures past payment history. A strong business credit profile says more about your business than just it’s credit-worthiness. Amber Colley, Director of Sales and Partnerships at Dun & Bradstreet, says, “It’s not just about finances…it’s about your credibility.”

Once you have successfully established your business’ credit, it is equally important to maintain it. The following are a few tips recommended by experts:

1. Pay Creditors on Time: Make sure you make your payments on time—or early. Dun & Bradstreet only assign perfect scores to those who pay early.

2. Limit your Spending: Moderate the amount of money you spend of your maximum credit limit—around 20% to 30%.

3. Use Reporting Lenders: Only use a lender that reports to the credit bureaus in order to maximize credit building opportunities.

4. Many online small business lenders—that are more willing to lend to bad-credit borrowers—actually report. These include OnDeck, Lending Club, Funding Circle, Fundation, Kabbage, and BlueVine.

Finally, remember that by building business credit for your start up, you can improve your company’s image, protect your personal credit, limit your liability, and increase its credit capacity. It is more favorable than depending on your personal credit score. Businesses can obtain anywhere from 10 to 100 times greater financing than an individual and with much better terms.