Time to Startup!

The BizFilings blog covering business tips and trends.

Steps for Building Business Credit for Your Small Firm

Published on May 29, 2012


Read 'Steps for Building Business Credit for Your Small Firm' at 'Time to Start Up,' the small business blog by BizFilings.
A strong credit history can only mean good things for your LLC; however, building business credit is no walk in the park. There are several issues that you need to take care of before your small business can boast a solid credit history. Make sure to check off these five steps while building business credit:
  1. Incorporating your business and getting a Federal Tax ID (EIN) number
  2. Creating a small business bank account
  3. Registering your small business with the business credit bureaus
  4. Building a strong payment record
  5. Keeping a reputable personal credit rating
Set up your legal business entity   If you're a sole proprietor, there's no clear distinction between a personal and business loan or personal and business credit. This is one reason why you need to create a corporation or an LLC, which reduces risk for issues such as liability, taxes and audits. Once you have set up your business, you have to obtain a Federal Tax ID number, which is the number that identifies your business and can verify associated information, much like a Social Security number for your business. Open a small business bank account In order to apply for many types of loans, your bank account must be at least two years old, which is why it is so important to set up your bank account as quickly as you can. In your bank account, you want a balance to show that you have the money available in order to take on debt and that you have built revenue over time. To obtain credit, businesses may need more than one bank reference to prove they have funds available from a variety of sources. Become listed with business credit bureaus  Setting up a complete profile with Dun and Bradstreet- one of the main business credit bureaus, which runs it own business credit score service - will help you see your credit score and what you need to do to improve it. You will be able to receive a free DUNS number from Dun and Bradstreet after you have created your business entity and once you have a Federal Tax ID number. Lenders will determine how worthy you are of receiving loans based in part upon your DUNS score. Showcase your ability to pay vendors and pay off credit cards Your business credit will continue to build as vendors report that your business has a good payment history. Paying invoices on or ahead of the due date can increase your business credit score drastically, while also adding to your solid payment history. It is important to keep track of your payment history, showing potential lenders that you are top of your finances and you have the ability to make payments on time or ahead of time. Creating your own trade reference sheet with at least three references, and attaching it to your business credit report, will show D&B you are a good business partner. Opening up a small business credit card and paying it off on time shows financial responsibility. Keep a strong personal credit history Though establishing your business as an LLC or corporation will make your personal credit history less significant to your business, potential lenders may also look into your personal credit history when determining whether or not your business is worthy of receiving a loan. Any shareholder that owns at least 20 percent of a business may be evaluated by creditors and lenders, so it is important that the shareholders' credit history is as strong as possible. A personal credit score of 680 or higher will usually showcase financial responsibility.