How to build Business credit: Building business credit by ten important steps

As an entrepreneur you have a unique opportunity to build, maintain and acquire business credit as well as personal credit. You can have both as an individual and as a business owner. You need not to rely solely on your personal credit to do that.

How to build Business credit?

Building business credit needs step by step process. You can build your business credit by following these processes. A credit profile starts with personal credit reporting agencies, when a holder of social security number applies for first credit card or accepts one’s first job. This profile is also known as a credit report. It is added to with every credit inquiry and credit applications. Those issuing credit typically report the information to the credit bureaus. The credit report is a statement of an individual's ability to repay one’s debt.

Personal credit scores range from 300 to 850. 680 or higher score is considered as excellent.

Personal credit differs from business credit. Business credit scores range on a scale from 0 to 100. 75 or more is considered as an excellent rating.

Only few of all entrepreneurs truly understand about establishing and tracking business credit. However, it affects their lives and businesses, advises a member of the business credit industry. We will discuss some steps you can take to build your business credit.

Do not mix your personal credit with your business credit. You can start building your business credit even before starting your business. This is crucial.

Every thing starts with the first step. so take your first step to build your own business credit as you have taken your first step to build your personal credit. Take the first and then the second and so on. You will reach the goal of building your excellent business credit with a score of 75 plus.

Your first step is to establish your business as a separate entity. Build your business credit profile separate from your personal credit profile. Your business has to be structured as a corporation or a Limited Liability Company (LLC). LLC is most commonly adopted by small businesses.

Your second step is to prepare a well-written business plan. You have to include necessary financial details with all required sections. Include every possible data in your business plan. Show and define how you have developed your plans and come up with your figures. Obtain all necessary licenses and / or permits required to start and run your business, before proceeding further. Please keep in mind that your initial goal is to establish a viable business on paper with details at appropriate place.

Your third step is to find out exact requirements of credit bureaus and lenders. You will always be in advantage if you know what's required of you. Accomplish those requirements and assess your credit yourself. It will be a great step in building your credit profile.

Your fourth step is to get a Federal Tax Identification number (FIN) also known as an Employer Identification Number (EIN) for business credit rating in America, the US. You can get it from the IRS.

Your fifth step is to start purchasing for your business. Your business needs your investment here. You may have individuals who will invest for you. Use that money to purchase from vendors and suppliers. Gradually shift from cash to credit purchase. This will let you establish your business credit.

Obtain five reporting vendor lines of credit for your business. Ensure that your business have at least five vendor lines of credit who report to the business credit agencies. There are over half a million vendors extending credit. However, only six thousands are reporting to the business credit agencies. There's no point in having vendor credit lines if they don't report to the national reporting agencies.

Your sixth step is to report your transactions to the credit bureaus. The major business credit bureaus in America, the US that compiles and provide copies of the reports are:

Dun & Bradstreet

Business Credit USA

Experian Business

Equifax Business

Ensure proper set up with all four or at least three business credit agencies. This is complicated but vital step.

Dun & Bradstreet is the biggest of all and provide you with Duns number which is permanent.

 Business credit rating is a review of transaction history of the business like a personal credit rating.

Lender uses credit rating to measure the level of financial risk of the business. They also use this to assess probability of defaulting on the loan.

When a business issues another business credit, it's referred to as trade credit. Trade or business credit is the largest source of lending in the world.

 Business credit bureaus gather Information about business credit transactions to create your business credit report using your business name and address. The business credit bureaus use this compiled data to generate a report about your business credit transactions.

Businesses have financial relationships with suppliers and lenders. Credit rating agencies gather information from them. Primary determining factor of a business credit report is promptness of the business in meeting its payment obligations. This includes paying suppliers, repaying loans and paying monthly leases and bills. They use these to create a rating for a business.

They also gather additional data from corporate finance reports, business filings, lawsuits filed against the business and judgments.  

Credit rating agencies also look in to the debt structure of the business. This includes type of loans i.e. secured and unsecured, amount of debt and repayment history. Financial resources, working capital, net worth and cash flow also gets significant consideration.

The fiscal information, however, is not considered in a vacuum. The business profile factors include equity, scope and size of the business, background of the promoters, number of employees and structure of the business. All these data are collected and calculated mathematically to come up with a credit rating.

In nut sell credit rating illustrates responsibility of a business in its payment procedures.

Normally lenders rely on your business credit report to determine your credit. They grant credit accordingly.

Your seventh step is to find companies willing to grant credit to your business without a personal credit check or guarantee.

N.B. Ensure that a company granting you business credit reports to the business credit bureau. Ensure that your business have at least three business credit cards not tied personally with you. There are over five hundred business credit cards. Only few of them issue a business card without using your social security number. You need to qualify for each business credit card. It will help build your business credit report and a financial foundation for your company.

Your eighth step is to obtain a reporting bank loan that is critical to your business credit.
Ensure that your business have loan from a bank that reports nationally. Only four hundred banks report nationally among five thousand business lending banks.

Your ninth step is to avail business funding programs for instant working capital.
Your business needs instant cash. There are many small business loan programs. Ensure that at least one of those is available to your business.

Your tenth step is to manage your debt. Make monthly payments to credit granters to keep your business credit profile active. Pay timely. It will positively affect your credit score.

Every business needs credit to start, maintain and expand. Start the necessary steps to build a business credit profile right now to obtain the best possible terms when you need it.

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