As a company owner, several items are always struggling to get your attention. At times, a task doesn’t come to the forefront until you absolutely have to take action. Business credit is not one of those things you want to wait to deal with until the last minute.
Your business may require access to credit to grow or you may want to take out loans to build inventory or purchase office space. Other companies may need funds to buy software to help their businesses run more efficiently and make more profit.
To build business credit, you need to make sure you separate your personal and business expenses – start with Novo, and earn interest on your money
Without business credit, it may be more challenging to get these loans or you may have to pay more for them. Here’s what you should know about business credit and how to begin building it to help your company get the financing it may need down the road.
What’s Ahead:
What is business credit?
Business credit is like personal credit in some ways but very different in others. Like personal credit, business credit is one way lenders assess whether they should lend money. For many firms, it’s important to keep their business credit healthy so they can borrow money to fund future growth.
Where business credit is different is how it is tracked and how the scores are calculated. Unlike personal credit, different companies offer different versions of business credit scores. They don’t all follow the same general methodologies.
To make matters more complicated, your business credit isn’t always reported. In some cases, it may even be mixed with your personal credit depending on how you applied for the credit. That’s why it is crucial to understand how business credit works and how to start building it.
How to begin building business credit
In the beginning, the best way to start building business credit takes some effort on your part. That effort will pay off as your business credit history grows and you gain borrowing opportunities you wouldn’t otherwise have access to.
You’ll need to establish your company before you can begin building credit. Some common sense things you should do include getting a business bank account and a business phone number.
Your firm can technically be any structure. It helps to have an official company, such as a corporation, partnership, or LLC, rather than a sole proprietorship. While these items won’t impact your business credit score, it helps verify your firm is legitimate.
Get an employer identification number for your business
As a company owner that wants to build business credit, there is one number you must get. That’s an employer identification number (EIN). I signed up for an EIN when I started my company and it was a super simple process.
An EIN identifies your business when you apply for business credit. You also use it to file tax returns and fill out W-9s. While some companies may allow you to apply for credit using your Social Security Number (SSN), that won’t help you build business credit.
Always apply for business credit using your company’s name and your company’s EIN. Doing so gives you the best shot at building your business credit.
Establish your company with Dun & Bradstreet
Other business credit bureaus usually start your credit file when creditors report business credit information. You can begin the process yourself with Dun & Bradstreet. You can get a D-U-N-S number, their way of tracking your business credit, here.
Even if you don’t get a D-U-N-S number, they will eventually start a file on your behalf if data is reported to them. I know this because they’re tracking my company and I never applied for a D-U-N-S number. Getting a number manually may speed up the process, though.
Getting a business line of credit
Once you’ve established your business and have received a D-U-N-S number, start applying for business credit. The only way to build credit is to have credit information reported to the business credit bureaus.
In the beginning, you may have to guarantee your business debt personally. That means if your firm can’t repay the debt, you will have to do so. Creditors do this to make sure they get paid, especially for new companies without a credit track record of their own.
Even if you do this, make sure you apply for the credit in your business’s name. Otherwise, it may show up on your personal credit report or not at all.
One of the easiest ways to build business credit is to take out a small business loan or line of credit from a company that reports to the credit bureaus. BlueVine is one of those companies. You can take out a Line of Credit (of up to $250,000) through BlueVine that you can draw from when you need cash right away. With interest rates as low as 4.8%, this Line of Credit is a good low-cost way to get cash when you need it, all the while building your credit.
Pay early and ideally in full
Once you have a business credit line open, you must use it responsibly. Some business credit scoring models only consider whether you made your payment on time or not.
However, one model focuses on how early you make your payment. The faster you pay your reported bills, the higher your score will be. For this reason, it makes sense to pay your company bills that get reported to the credit agencies as early as possible. This helps you start earning a higher score for this business credit score model.
When paying your bills, you also want to keep your credit utilization low to build a great score. Ideally, you allow your balance to hit your account’s billing statement. Make sure the balance doesn’t max out your credit limit, though.
If it does, pay the balance down to a more reasonable percentage of your limit before your statement is generated. It is important to still show a balance on your statements so the reporting companies can see you’re using your credit lines.
Once the statement generates, pay the remaining balance off in full each month to avoid interest or other charges. This also helps you keep your utilization lower than if you allow your balance to grow over time.
Accounts to help you start building your business credit
You’re probably wondering what types of accounts can help you build your business credit. Here are a couple of easy options to get started with.
Make sure you can pay your business bills properly with a business bank account
When you’re a company owner, it’s often best to keep your personal and firm’s finances separate. For that reason, having a business bank account can make it much easier to pay your company’s bills.
It can also help business credit reporting agencies feel like you’re a more established company than one without a business banking account. Here are a couple of bank account options for businesses that may fit your needs.
Bank Novo
Bank Novo is an online small business banking solution. It tends to work best for those that don’t need to visit a bank branch for in-person transactions, such as depositing large amounts of cash regularly. The best part is you can apply for an account in minutes, which is much faster than what I experienced when opening a business bank account at a brick and mortar bank.
Bank Novo makes it easy to manage your company’s finances because it connects with several apps or software programs your business may already use. These currently include Stripe, Zapier, Quickbooks, TransferWise, Xero, and Slack. You can even deposit checks with their app by taking photos rather than mailing them in.
Learn more about Bank Novo or read our full review.
Introducing Chase Business Complete BankingSM
If your company needs a bank account with physical branch locations, you may want to consider the Chase Business Complete BankingSM account. You can make business payments with Chase online bill pay or your Chase business debit card. You can send wire transfers, as well.
The account offers 100 transactions per month without fees and gives you unlimited electronic deposits. You can deposit up to $5,000 in cash per statement cycle without extra fees. There is a $15 monthly fee and it can be waived.
Learn more about Introducing Chase Business Complete BankingSM or read our full review.
Apply for a small-business credit card
A credit card can be a smart way to begin building your business credit. Make sure the cards you choose report your activity to the business credit scoring company you’re focusing on before applying. Here’s one you might want to consider.
American Express® Blue Business Cash Card
The American Express® Blue Business Cash Card is a no annual fee business credit card. It offers a 0% introductory APR on purchases for the first 12 months. You can also get up to $100 in statement credits for the first $100 spent at each Dell Technologies, DocuSign, and FedEx within the first three months of card membership for a total of up to $300.
You’ll earn 2% cash back on up to $50,000 in eligible purchases each calendar year. After that, you’ll earn 1% cash back on purchases for the rest of the year. You can apply today and get a decision in as fast as 30 seconds.
There are no fees for extra cards for your employees. You can even set individual spending limits, alerts, and get summary reports for your employee cards. The best part is, employee cards earn cash back, too.
Credit accounts with vendors
Vendors often offer credit terms to their customers as a way to ease the purchasing process. The types of vendors will depend on your industry. Common examples of companies that may provide credit terms could be parts suppliers, office supply companies, or even material suppliers.
Make sure to ask the vendors if they report your payment history to the business credit scoring companies before you bother setting up an account. If they don’t, there isn’t much point in opening a credit account unless you were going to do so anyway.
Summary
While business credit isn’t as uniform as personal credit, it isn’t difficult to get started. Establish your company properly, get an EIN, and get a business credit card or supplier credit line to start building business credit.
Make your payments on-time or early, if possible, and focus on practicing good credit health, such as keeping a low credit utilization ratio. Over time, your business credit will build. Then, you’ll have an established business credit history to help you when you need to borrow money to grow your company.
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Source: moneyunder30.com