Establishing strong business credit goes a long way to helping you access the financing you need to grow. Your personal credit rating is important, but it alone won’t help you secure a loan or business credit line.
Business credit doesn’t exist by chance. It’s reported through an algorithm that looks at multiple factors, including information from creditors and vendors you do business with. A better score results in better rates and terms when working with lenders, suppliers, and vendors.
If you want to access affordable financing options, here are six ways to establish your business credit.
1. Secure Your Federal Tax Identification Number
An employer identification number (EIN) is used by the IRS to monitor businesses. This is similar to the way you use your social security number for identification when filing personal taxes.
An EIN isn’t required for many businesses, including sole proprietorships, partnerships, and single-owner LLCs that don’t have employees. However, you should still look into getting one since the IRS uses it to keep track of your business’s tax obligations and income.
Credit applications typically ask that you provide your EIN or social security number. Without an EIN, your credit history can’t be tied back to your business. It will reflect on your personal credit history instead.
2. Set Up Your Business Entity
Establishing your business entity ensures your business gets proper credit for its payment history. Otherwise, your personal accounts will get credit for good payment habits.
Be careful with the type of business structure you choose. Unincorporated entities like sole proprietorships and partnerships don’t draw financial distinction between you and the business.
Incorporated business entities help you establish business credit. These structures are C corporations, S corporations, and LLCs. Discuss your options with a financial advisor to determine which best fits your needs.
3. Apply for Your DUNS Number
DUNS stands for Data Universal Number System, which is an identification process for businesses. Applying for a DUNS connects your business with Dun & Bradstreet — a leading business credit reporting agency.
This nine-digit code can help you establish and monitor your business credit. It’s also required if you apply for an SBA loan or a government contract.
4. Open a Business Bank Account
You can’t establish business credit without a dedicated business bank account. Fortunately, many banks offer free checking accounts for business usage.
The longer your account has been in use, the better chance you have of obtaining future financing. It also creates a point of reference for credit reporting agencies, so open your business account as soon as you’ve secured your EIN.
5. Maintain Good Relationships
Vendors and suppliers can help boost your business credit as long as you establish and maintain positive relationships.
Strive to make your payments in full and on time. You can ask your suppliers and vendors to report your payments to business credit bureaus, which will help boost your score.
6. Pay Attention to Your Information
Business credit reporting doesn’t follow the same process as personal credit. Equifax, Experian, and Dun & Bradstreet all have their own systems for collecting business credit history.
The three business credit bureaus collect different kinds of information, with lenders reporting varying forms of data. That’s why it’s important for you to maintain and monitor your information for each report.
Work with a Financial Services Partner
ValueOne’s team of advisors understands the unique needs of small business owners. That’s why we offer a range of critical financial services to help you run and grow your business.
Loans and credit lines can help you build and establish your business credit. Responsible borrowing habits and timely payments keep your score strong.