6 Tips On Establishing Business Credit For Startup Companies

6 Tips On Establishing Business Credit For Startup Companies

June 20th, 2020   |   Updated on June 28th, 2022

Did you know that 45% of business owners did not know they had a business credit score? Considering the importance of business credit, this number is quite alarming.

Building business credit is a crucial part of running a successful business.

It helps you qualify for instant business loans, get better interest rates, negotiation leverage with suppliers, and more.

Startup companies should focus on building business credit. However, it’s important to remember that having a strong credit rating doesn’t happen overnight.

To help you get started, here are six tips on how to establish business credit for startup companies.

1. Register Your Business

To build your business credit, you need to keep your business and personal financing separate.

Since most startup companies start small, they tend to think that mixing both personal and business finances is acceptable.

This may work for a time, but if you want to grow your business, you need to keep them separate. One way to do this is to register your business legally.

Most startup companies are a general partnership or a sole proprietorship because it’s the easiest business structure to work with when it comes to starting a business and managing paperwork.

However, in this business structure, there’s no financial or legal separation between the company and the business owner.

Therefore, if you apply for instant business loans, you’ll need to give your personal social security number.

Any activity on your business accounts will reflect on your personal credit report. If your business fails, your personal credit score will also take the plunge.

2. Build And Maintain Good Credit Relationships With Your Suppliers

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Having a strong credit relationship with your suppliers is a valuable resource. The better your relationship, the less likely you are to pay upfront for supplies. They can help build your business credit rating as well.

If you can secure a line of credit or payment terms with your vendors, they can report your payments to business credit reporting agencies. In this way, you can establish a positive credit history given that you pay on time.

However, your suppliers are not obliged to report to credit agencies. To build credit, you may need to work with those that do.

3. Loan Money From Lenders That Report To Credit Agencies

If you’re repaying loans and credit cards on time, you can leverage your spotless payment history.

However, make sure you’re working with a lender that reports to credit agencies. Similar to your suppliers, lenders are not required to report to credit bureaus.

The lender you’re working with should preferably report to at least one of the three major credit agencies: Equifax, Experian, and Dun & Bradstreet (D&B).

Most banks and traditional financing companies routinely report to business credit bureaus.

However, some alternative or online lenders don’t file reports. Make sure to check the lender’s policy before applying to ensure that you can build business credit from your loan.

4. Get Your Business DUNS Number

Among the three major credit bureau, D&B is the most popular. Their Paydex score what suppliers and creditors commonly use. With that said, it’s best to open a credit file with this agency to build business credit.

The first thing you need to do is to register for a Data Universal Number System or DUNS.

It’s a numerical identification process for businesses. It’s like Social Security, but for business.

Getting your DUNS number is free and you can do this on the D&B website. However, you need to wait up to 30 days before you can receive your DUNS number.

Businesses are not required to have a DUNS, but most suppliers and lenders use it, do if you’re trying to build credit for your business, applying for a DUNS is a great idea.

5. Separate Personal And Business Expenses

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This point may seem redundant, but it’s important to understand that both your personal and business expenses should be separate as well.

Make sure to open lines of credits, bank accounts, and credit cards under your business’ name to separate your expenses.

Spend money from your business bank accounts rather than from your personal when paying for business expenses. This makes it easier for you to manage your taxes and keep track of your income.

6. Always Pay On Time

Paying your bills on time is the number one rule when it comes to building credit. It shows that you are reliable and capable of effectively managing and paying off debt.

Late payment history and severely delinquent payments can negatively affect your business credit profile.

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Startup companies find it challenging to secure the funding they need from traditional lenders.

Businesses looking to qualify for bank loans must have an established business history and a strong credit rating. Startup companies may not have the history and rating to qualify for a bank loan.