How to Build Business Credit Like a Boss

How to Build Business Credit Like a Boss

How to Build Business Credit Like a Boss

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Building business credit is one of the most important things you can do as an entrepreneur, yet only some actually take the time to understand it.

We all know Credit is important – it determines interest rates on loans, approval for financing, and even rental applications. But most people only think about personal Credit. They need to realise that business credit is an entirely separate system that requires just as much attention.

So why does business credit matter so much? Two words: access and cost.

With strong business credit, you get instant credibility with vendors and lenders. You can qualify for larger credit lines with lower rates, making it easier to fund growth. But you need to invest the time to build your business profile to avoid getting stuck with high-interest costs that eat into your margins. So, how do you build business credit.

Learn How To Build Business Credit Like A Boss And Establish A Strong Financial Foundation For Your Company.

Why it’s Important to Establish Business Credit

Establishing strong business credit is critical for any company’s success. Though personal credit is often emphasized, business credit serves unique purposes like enabling access to financing, fostering credibility with partners, and facilitating growth.

Building business credit involves obtaining credit lines in the company’s name and responsibly managing payment history. It separates business finances from personal, limiting liability. With strong credit, companies can more easily secure funding to seize opportunities like expanding facilities, hiring staff, or purchasing equipment.

Access to capital allows investment in potentially profitable ventures that are unattainable.

Overall, business credit enables access to resources that can catalyze growth. It establishes trust and credibility with suppliers and partners. By proactively building credit, companies position themselves for long-term prosperity and resilience. Maintaining an ethical, original business reputation is also key — plagiarism erodes brand image and loyalty.

 Businesses should develop unique voices and styles.

 Proper citation avoids misrepresenting others’ work as your own.

 With integrity and effective credit management, companies can unlock their potential.

Benefits of Building Business Credit:

Here are some key benefits of building business credit:

  • Easier access to financing. Good business credit makes it easier to qualify for loans, lines of Credit, and other financing needed to grow your company. Lenders view strong Credit as less risky.
  • Better loan terms. Businesses with excellent credit scores can negotiate lower interest rates, higher credit limits, and longer grace periods than those with poor Credit. It saves money.
  • Separates personal and business finances. Having business credit helps keep your personal and business finances distinct. Business credit activity doesn’t affect your individual credit reports.
  • Builds credibility. A strong credit profile indicates your business manages finances responsibly and can be trusted by lenders and suppliers. It establishes credibility.
  • Improves cash flow. Business credit cards allow flexibility to purchase inventory and other necessities when cash reserves are low. It helps smooth out cash flow fluctuations.
  • Fuels growth. Access to capital enables investing in expansions, new equipment, more staff, and other growth opportunities that otherwise may be unaffordable.
  • Attracts top talent. Credit can help fund recruitment, training, retention incentives and other initiatives to bring in skilled employees.
  • Simplifies accounting. Using a dedicated business credit card simplifies tracking expenses for accounting, tax purposes, and managing cash flow.

So, how do you build strong business credit? I’ll walk you through the key steps, but first, grab a drink and get comfortable – this is some next-level financial sorcery.

How to Build Business Credit:

Step 1 – Get Your Business Entity Right

The foundation of business credit is having the right type of company. Most experts recommend forming an LLC or Corporation. The reason is simple – these entities clearly separate your personal and business finances.

Banks want to extend credit to the business, not you personally. Having an LLC or Corp makes this distinction clear. Your dog grooming side hustle probably can handle this, but any serious venture should be properly formed.

Step 2 – Get a Business License and EIN

Think of this as getting your business ID. Just like you need a driver’s license to open a personal bank account, your company needs a business license and EIN to open business accounts.

Your business license is issued by your state or county when you formally register your entity. It authorizes you to operate legally.

An EIN (Employer Identification Number) is like your business’s social security number. You’ll need it to open business bank accounts and apply for credit.

Getting both of these is a routine but necessary step in establishing business credit.

Step 3 – Open Business Bank Accounts

Here’s where you lay the foundation for your company’s financial profile. Opening dedicated business accounts shows lenders you are managing things properly.

At a minimum, open a business checking account. It provides a record of regular transactions, deposited revenues, and managed expenses – things banks want to see.

A business savings account is also recommended – not for interest earnings, but to show you can reserve and accumulate funds.

Pro Tip: Many major banks allow you to open accounts online in minutes. Take advantage of this to establish accounts quickly.

Step 4 – Get a Business Credit Card

It is the gateway card to the business credit card world. By responsibly managing a credit card tied to your business, you show lenders you can handle credit.

When applying, use your company’s legal name and EIN. It reports the account to business credit bureaus. Avoid using your SSN, which marks it as personal credit.

Keep the card for business expenses only. Pay off balances monthly. After 6 months of responsible use, this card will begin building your business credit profile.

Step 5 – Apply for Vendor Credit Accounts

Vendor accounts are credit lines with suppliers that allow you to purchase inventory or other items on credit. The two most popular are Net30 and Net60 accounts.Net30 means you have 30 days to pay the balance before finance charges apply. Net60 gives you 60 days.

Having 2 to 3 of these accounts reporting your on-time payments will add significant points to your business credit score.

Good options to apply for include Uline, Grainger, Amazon Business, and Home Depot Commercial.

Step 6 – Get a Business Line of Credit

At this point, you should have enough trade lines to qualify for a small business line of credit—these function like credit cards, with a revolving balance up to your approved limit.

The key advantage is that interest rates on lines of credit are much lower – often below 10%. It makes them ideal for larger investments.

Banks will review your business credit profile, including any negative marks and how long accounts have been open. Start small – $5k – $20k limits – and request increases over time.

Step 7 – Continue Building Credit Over Time

If building personal credit is a marathon, business credit is an ultra-marathon. Consistency over several years is key to reaching high scores.

Keep accounts open and in good standing. Apply for new credit lines periodically. Stay on top of documentation renewals—Automate payments to avoid mistakes.

It will take time, but the investment is worth it. Great credit means great options when you need capital to grow.

Can a Personal Credit Card Help with Building Business Credit:

Using a personal credit card for business expenses will not help build business credit since personal and business credit is tracked separately.

However, there are some indirect ways a personal card could assist in establishing business credit:

  • If you use personal credit responsibly, it can strengthen your personal credit score. A higher personal score makes it easier to qualify for business credit cards, which do build business credit.
  • The spending history and limits on your card help demonstrate your creditworthiness when applying for business credit cards.
  • Rewards earned on a personal card used for business can be reinvested into the company. However, separating business and personal expenses is still recommended for accounting purposes.
  • Some personal card issuers report card activity to business credit bureaus, so responsible use of those cards can contribute to your business credit profile.

Frequently Asked Questions:

What is a good business credit score?

720-750 is considered “good” business credit. 760-800 is “excellent” and above 800 is “exceptional”. Anything below 650 signals high risk.

Can I get business credit as a sole proprietor or freelancer?

Yes, but you must apply using your EIN, not SSN. This establishes separate credit records. Banks may require a DBA certificate.

Does business credit show up on personal credit reports?

No, business credit profiles and scores are maintained separately from consumer credit records. Business accounts do not help or hurt your personal credit.

The Bottom Line:

Building strong business credit unlocks huge advantages as an entrepreneur. Yes, it requires diligence and patience. But the effort is well worth it. Use this guide to start your journey today.

 
 
 
 
 
 
 
Konger Avatar
Konger
7 months ago

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*The information this blog provides is for general informational purposes only and is not intended as financial or professional advice. The information may not reflect current developments and may be changed or updated without notice. Any opinions expressed on this blog are the author’s own and do not necessarily reflect the views of the author’s employer or any other organization. You should not act or rely on any information contained in this blog without first seeking the advice of a professional. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained in this blog. The author and affiliated parties assume no liability for any errors or omissions.