Top 5 Ways to Establish Business Credit as a Startup

Just because you’re great with your own personal credit, doesn’t mean you’re great with your business’ credit. Read on to learn the top five ways to establish business credit as a startup.

Are you in the process of creating your own startup?

If so, you have many challenges to overcome. One of the biggest might be establishing and building business credit.

Unlike personal credit, business credit involves a lot more than just finding the right credit card.

Before a potential lender, vendor, or supplier will work with you, they’ll first want to know your business credit score.

What can you do to establish and build your business credit? Here are five tips that will help.

1. Create a Business Entity

If you haven’t already, now’s the time to separate yourself from your business–legally speaking.

As the sole proprietor, you’re only eligible for a personal loan. To apply for business credit or a business loan, you must first set up a legal business entity separate from your personal finances.

This might be an LLC, a C Corporation, or an S Corporation. If you’re not sure which would be best for your business, be sure to talk to your CPA.

2. Get a Tax ID Number and Business Bank Account

Now that your business is legally established, your next step is to apply for a tax ID number or Employer Identification Number (EIN).

This is a 9-digit number from the IRS that you’ll use in all future business credit dealings. For example, you’ll need it to open your business bank account, which is the next item on our list.

Ideally, your account should show sufficient cash flow for the loan amount you’re seeking.

3. Get Your Business Listed

Your next step is to list your newly-formed business with all three credit bureaus:

• Experian
• Equifax
• TransUnion

You should also get listed with business-specific bureaus, such as Dun & Bradstreet (D&B). This gives your business a distinct number that rates your credit profile.

This number is vital in determining the creditworthiness of your company. In fact, most credit card or lending companies will ask for your D&B number when you apply.

4. Establish Business Credit History

The more vendors you have that report a good payment history from you, the better your business credit will become.

If you’re dealing with smaller vendors that don’t report to the D&B, you should create a trade reference sheet of business you work with. Include their name contact info, and credit limits and keep it with your official business credit report.

It’s okay to open a business credit card, too–just use it wisely!

5. Keep an Eye on Your Personal Credit Too

The whole idea of establishing business credit is to separate it from your personal credit.

However, don’t fool yourself into thinking that your personal credit score doesn’t matter at all. In the early stages of your startup, lenders will likely consider your personal credit, too–along with anyone with a 20% or higher share in your company.

If you’re in the early stages and your personal credit is currently excellent, you may want to consider freezing your credit report. You can learn how to freeze your credit report here.

Final Thoughts on Building Your Business Credit

Establishing good business credit takes time and hard work, but your efforts will be worth it in the end.

By taking the right steps now, you’ll develop your startup into a business that other companies will be eager to work with.

Looking for more tips on establishing and funding your startup? Click here for more helpful advice.