Solid business credit opens doors to opportunity. It allows you to secure loans, negotiate better deals with suppliers, and even attract new investors.
But for fledgling businesses, establishing good credit can feel like a daunting task.
This guide will equip you with the knowledge and tools to build a strong business credit profile, brick by brick.
What is Business Credit?
Think of business credit as your company’s financial reputation. Just like individuals have personal credit scores, businesses have business credit scores that assess their creditworthiness.
These scores are calculated by business credit bureaus like Dun & Bradstreet and Experian based on factors like payment history, debt levels, and business age.
Good business credit translates to lower interest rates on loans, access to higher credit limits, and improved vendor relationships.
What is the fastest way to build business credit?
Your first step on the credit-building journey is obtaining a Dun & Bradstreet Universal Number (DUNS).
This unique nine-digit identifier serves as your business’s official identification with credit bureaus.
Obtaining a DUNS number is free and simple, and several suppliers and vendors report payment data to Dun & Bradstreet, helping you build your credit history organically through on-time payments.
How to develop business credit
While a DUNS number lays the foundation, actively building credit requires a strategic approach. Here are key steps:
- Open a Dedicated Business Bank Account
Separate your personal and business finances by opening a dedicated business bank account.
This establishes your business as a distinct entity and allows you to track business income and expenses accurately.
Many banks offer business credit cards alongside accounts, opening doors to further credit-building opportunities.
- Utilize Vendor Credit
Negotiate net terms with vendors who report to business credit bureaus. Paying these invoices on time or even early establishes a positive payment history, boosting your credit score.
Start with smaller purchases and gradually build trust with vendors for extended credit terms.
- Secure a Business Credit Card
Responsible use of a business credit card can significantly improve your credit score.
Choose a card with low interest rates and reporting to major credit bureaus.
Remember, treat this card like a valuable tool, not a free spending spree. Pay your balance in full each month to avoid high interest charges and damaging your credit score.
- Consider Secured Loans
If you have limited credit history, consider a secured loan where you use collateral (like business assets) to secure funding.
Making on-time payments on these loans builds your creditworthiness for unsecured loans in the future.
- Monitor and Maintain Your Credit Reports
Regularly monitor your business credit reports from different bureaus for errors or inaccuracies.
Dispute any discrepancies promptly to ensure your credit score reflects your true financial health.
- Practice Patience and Persistence
Building strong business credit takes time and consistent effort. Don’t get discouraged if results aren’t immediate.
Stick to your plan, make timely payments, and manage your debt responsibly.
Gradually, you’ll establish a creditworthy reputation that unlocks future growth opportunities for your business.
Building good personal credit can also contribute to your business credit, especially in the early stages.
So, ensure you maintain a healthy personal credit score alongside your business credit-building efforts.