How to Build Business Credit - A Comprehensive Guide to Business Credit Building Basics

We Have The Insider Secrets to Building Business Credit

If you're looking to learn how to build business credit, this post is not for you. We have a membership available with all of the instructions and vendors you need to establish your business credit.

Let us let you in on a little secret: building business credit is an essential step in establishing a strong financial foundation for your company. It is also an essential step for business growth. We like to emphasize this statement to any new business owner who will embark on the journey to building business credit: business credit is for businesses doing business. We will explain more what this mean later.

We wanted to dispel any myths about business credit in this compressive guide and give you an overall idea of how to get started, how to get 6 figures in business credit, and what business credit CAN be used for.

First, let's take a look at the importance of business credit.

Establish Business Credit: The Importance Of Business Credit

Establishing a strong business credit profile is one of the keys of entrepreneurial success, often overlooked until it's too late. Yet, so many entrepreneurs and business owners do not know much about business credit building. If you are a new startup reading this article, then you are going to learn the basics which is more than most.

Think of business credit as the reputation scorecard for your business - it's a numerical representation of your company's credibility, reliability, and trustworthiness in the eyes of lenders, suppliers, and partners.

A good business credit score can unlock access to lower interest rates, better loan terms, and increased credit limits, giving you the financial flexibility to invest in growth opportunities, weather economic storms, and stay ahead of the competition. On the other hand, a poor business credit score can lead to higher interest rates, stricter payment terms, and even business stagnation.

In today's digital age, where data-driven decisions reign supreme, a solid business credit foundation is no longer a "nice-to-have", but a must-have for any serious entrepreneur looking to build a sustainable and scalable business empire.

By prioritizing business credit building, you're not only protecting your business from financial vulnerabilities but also positioning yourself for long term success and profitability.

But what is business credit. Did you know that 80% of business owners do not know what business credit is?

Business Credit Definition

Business credit refers to the creditworthiness of a company or organization, which is evaluated based on its financial history, payment patterns, and other factors that indicate its ability to repay debts and loans. It is a measure of a business's credibility and trustworthiness in the eyes of lenders, suppliers, and other creditors.

To get a better understanding, you would need to know the key components of business credit which are:

1. Credit History: A record of a business's past borrowing and repayment activities, including loans, credit cards, lines of credit, and other forms of debt.
2. Payment History: A record of a business's payment habits, including on-time payments, late payments, and any missed or skipped payments.
3. Credit Utilization: The amount of credit used compared to the total credit available to the business.
4. Public Records: Any public records related to the business, such as tax liens, court judgments, or bankruptcies.
5. Industry and Business Type: The type of industry or business the company operates in, which can impact its creditworthiness.
6. Years in Operation: The length of time the business has been operating, which can indicate stability and reliability.
7. Financial Performance: The business's revenue, profitability, and cash flow, which can impact its ability to repay debts.

All of these factors will go into your business credit report which will show all of these seven points within your monthly report. Your new startup business can get business credit almost immediately after completing your business foundation. You will start off with smaller lines of trade credit until your business can demonstrate timely payments, cashflow growth, and years in operation. Your business will be able to qualify for trade credit such as starter (Net 30s), retail, fleet, service, and business credit cards. Here are the other types of business credit.

Types of Business Credit:

1. Trade Credit: Extended by suppliers or vendors to allow businesses to purchase goods or services on credit.
2. Bank Credit: Provided by banks in the form of loans, lines of credit, or credit cards.
3. Alternative Lending: Offered by non-traditional lenders, such as online lenders or peer-to-peer lending platforms.
4. Invoice Financing: Based on outstanding invoices or accounts receivable.

Once you start getting approved for business credit, pay on time, and growing your cashflow you will want to monitor your business credit reports. Check to see if your trade credit account is being accurately reported. You can see your top three business credit reports with Nav. com. However, there are 5 different business credit reporting agencies that you should know about. Here they are with their key roles and functions in a bulleted list:

1. Dun & Bradstreet (D&B)

Key Role: Provides business credit scores and reports to help businesses build credibility and access capital.

Functions:

• Assigns a unique D-U-N-S number to each business for identification purposes.

• Collects and analyzes business data, including payment history, credit inquiries, and public records.

• Offers credit scores, such as the PAYDEX score, which ranges from 1-100.

• Provides business verification and authentication services.

2. Experian Business

Key Role: Offers business credit reports and scores to help businesses manage risk and make informed decisions.

Functions:

• Collects and analyzes business data, including credit history, public records, and demographic information.

• Provides credit scores, such as the Intelliscore Plus, which ranges from 0-100.

• Offers business identity verification and fraud detection services.

• Provides industry-specific credit reports and analytics.

3. Equifax Business

Key Role: Provides business credit reports and scores to help businesses manage risk and optimize operations.

Functions:

• Collects and analyzes business data, including credit history, public records, and financial information.

• Offers credit scores, such as the Equifax Business Credit Score, which ranges from 101-992.

• Provides business identity verification and fraud detection services.

• Offers industry-specific credit reports and analytics.

4. CreditSafe

Key Role: Offers international business credit reports and scores to help businesses manage global risk.

Functions:

• Collects and analyzes business data from over 200 countries.

• Provides credit scores, such as the CreditSafe score, which ranges from 0-100.

• Offers business identity verification and fraud detection services.

• Provides industry-specific credit reports and analytics.

5. Ansonia Credit Data

Key Role: Specializes in providing credit data and analytics for small businesses and startups.

Functions:

• Collects and analyzes business data, including credit history, public records, and financial information.

• Offers credit scores, such as the Ansonia Credit Score, which ranges from 0-100.

• Provides business identity verification and fraud detection services.

• Offers customized credit reporting solutions for lenders and investors.

These five agencies play a crucial role in helping businesses establish and maintain good credit health, while also providing valuable insights for lenders, investors, and other stakeholders.

As you embark on your entrepreneurial journey, it's essential to establish a solid foundation for your business. This includes taking care of the legal and financial aspects that will help you build a strong and sustainable business. In this section, we'll explore three critical steps to set the groundwork for your business: establishing your business legally, separating personal and business finances, and preparing necessary business documentation for credit.

Establishing Your Business Legally

Before you start operating your business, it's crucial to establish a legal entity that protects you and your business from potential liabilities. This involves choosing a business structure that suits your needs such as a limited liability company (LLC) or corporation. Establishing a sole proprietorship will not signal to a lender or vendor of a trade credit that you are serious about your business. We know this to be true because potential clients who have tried to get business credit as a sole proprietorship was turned down and admonished to get at least LLC.

Some key considerations when establishing your business legally include:

• Registering your business with the state and obtaining necessary licenses and permits.

• Obtaining an Employer Identification Number (EIN) from the IRS.

• Creating a business name and registering it with the appropriate authorities.

• Drafting and filing articles of incorporation or articles of organization

By establishing your business legally, you'll be able to open a business bank account, obtain credit, and protect your personal assets in case of lawsuits or other legal issues. This is a very necessary distinction that needs to be put into place. Read further for more.

Separating Personal and Business Finances: A Necessary Distinction

One of the most critical mistakes entrepreneurs make is commingling their personal and business finances. This can lead to confusion, errors, and even legal issues down the line. To avoid these problems, it's essential to separate your personal and business finances by opening a dedicated business bank account.

A business bank account will allow you to:

• Keep track of your business income and expenses separately from your personal finances

• Make it easier to prepare tax returns and financial statements

• Establish credibility with lenders and investors

• Protect your personal assets in case of legal issues

Additionally, consider using a credit card for business expenses to keep track of expenditures and earn rewards or cashback.

Mastering Business Credit: A Comprehensive Guide to Success

In this section, we'll dive deeper into the five essential components of business credit management. By understanding and implementing these strategies, you'll be well on your way to establishing a strong business credit profile, unlocking new financing opportunities, and driving growth for your organization.

1. Getting Started with Business Credit

Establishing a solid foundation is helpful when building business credit. Here's how to get started:

A. Obtaining a Business Credit Card: Apply for a business credit card in your company's name to begin building credit. Make sure to choose a card that reports to the major business credit bureaus, such as Dun & Bradstreet, Experian, or Equifax.
B. Starting with Vendor Credit: Identify vendors that offer net-30 terms or other forms of vendor credit. This will help you establish a payment history and build relationships with suppliers.
C. Utilizing Trade Lines: Trade lines are lines of credit extended by suppliers or vendors. They can help you establish a positive payment history and improve your business credit score.

Notice that we said to get a business credit card first. To build business credit efficiently in today's world, getting approved for high limit business credit card is the first step to getting the most from building business credit. Why? As a new business owner you need funding and opening a business credit card or stacking them can be a great way to get your first round of funding. You will need to use your personal credit profile to get approved, This is where our credit audit will help.

2. Managing Your Business Credit

Effective management is key to maintaining a healthy business credit profile. Follow these best practices:

A. Understanding Credit Utilization: Keep your credit utilization ratio below 30% to avoid negatively impacting your credit score. This means if you have a $10,000 credit limit, try to keep your balance below $3,000.
B. Payment Practices for Positive Credit Reporting: Make timely payments to demonstrate responsible credit behavior. Set up payment reminders or automate your payments to ensure you never miss a payment.
C. Regularly Monitoring Business Credit Reports: Obtain copies of your business credit reports from the major bureaus and review them regularly to detect any errors or discrepancies.

3. Improving and Maintaining Business Credit Scores

A good business credit score can open doors to new financing opportunities and better interest rates. Here's how to improve and maintain your scores:

A. Strategies to Increase Credit Scores: Focus on making on-time payments, keeping credit utilization low, and avoiding negative marks on your report.
B. Dealing with Negative Marks on Business Credit Reports: Dispute any errors or inaccuracies on your report, and work to resolve outstanding debts or collections.
C. Importance of Public Record Filings: Ensure all public records, such as tax liens or judgments, are up-to-date and accurate to avoid negatively impacting your credit score.

4. Leveraging Business Credit for Growth

With a strong business credit profile, you can access new financing opportunities and drive growth for your organization. Consider the following strategies:

A. Financing Options and Opportunities: Explore alternative financing options, such as invoice financing or equipment financing, that can help you access capital quickly.
B. Using Business Credit for Leasing or Purchasing Assets: Use business credit to lease or purchase assets, such as equipment or vehicles, that can help drive revenue growth.
C. Refinancing Existing Debt with Business Credit: Refinance high-interest debt with lower-interest business credit options to reduce your borrowing costs.

5. Navigating Challenges in Business Credit

Even with careful planning, challenges can arise in business credit management. Here's how to navigate common obstacles:

A. Handling Business Credit During Economic Downturns: Diversify your funding sources and prioritize cash flow management during economic downturns.
B. Resolving Discrepancies and Disputes on Credit Reports: Work with the credit bureaus and creditors to resolve any disputes or errors on your report.
C. Building Business Credit with a Limited or Poor Personal Credit History: Focus on building a strong business credit profile by making timely payments and keeping credit utilization low.


Crafting a strong business credit profile is an important tool in advancing your company's financial stability and growth. By understanding the nuances of starting, managing, and leveraging business credit, you equip your enterprise with the resilience to navigate the complexities of financial markets. Actively maintaining your credit can draw the line between simply surviving and thriving in the business world.

It's never too late to start building and managing your business credit today. Don't let your business potential remain untapped. Get started now by scheduling an appointment to start your business credit membership which is $250 per month for 12 months.