Introduction: Why is Business Credit Important?
When you start a business, one of the most important things to build is your business credit.
Why?
Because business credit helps you:
- Get better loan rates
- Open lines of credit
- Establish trust with vendors and suppliers
- Separate your personal and business finances
- Improve cash flow management
Having good business credit can be a game-changer, especially if you plan to grow your business quickly. But how do you build it fast?
That’s exactly what we’ll dive into in this article!
What is business credit?
Before we jump into how to build it, let’s take a moment to understand business credit.
Business credit is a score that shows how responsible you are when it comes to managing debt and paying your bills on time. It’s similar to your personal credit score, but it’s tied to your business rather than your personal finances.
Just like your personal credit score, a higher business credit score means you’re seen as less risky to lenders, which can help you get:
- Business loans
- Business credit cards
- Lower interest rates
Now, let’s see how you can build your business credit fast in the USA!
Step-by-Step Guide: How to Build Business Credit Fast
Building business credit takes time and patience, but there are steps you can take to speed up the process. Here’s how you can build it quickly:
1. Register Your Business Properly
The first thing you need to do is legally set up your business. This helps separate your personal credit from your business activities, which is crucial for building business credit.
Here’s how to get started:
- Choose a legal business structure: The most common types are LLC (limited liability company), corporation (C-corp or S-corp), or sole proprietorship. An LLC or corporation is ideal because it separates personal and business liabilities.
- Get an Employer Identification Number (EIN): An EIN is like a Social Security number for your business. You can get this for free from the IRS website.
- Register with your state: You’ll need to register your business with your state (usually with the Secretary of State’s office).
Why it matters:
When you officially register your business, you create a solid foundation for building business credit, and it ensures you can get credit lines in the company’s name instead of your own.
2. Open a Business Bank Account
Once your business is registered, the next step is to open a business bank account. This account should be separate from your personal account.
Why?
It keeps your business transactions separate, which is necessary for tracking your expenses and establishing credibility with lenders.
What you’ll need to open a business account:
- Your EIN
- Articles of Incorporation or LLC Operating Agreement
- Business license (if required)
Using a business bank account helps you build a paper trail that shows you’re managing your business properly.
3. Get a Business Credit Card
Next, apply for a business credit card. A business credit card helps establish your credit history and gives you the flexibility to make purchases for your business.
Here are some tips to help you get started:
- Choose a card with no annual fee: Look for cards that help you build business credit without charging you high fees.
- Use the card regularly: Make purchases for your business on the card and pay it off every month.
- Pay your balance on time: Your payment history will impact your credit score. Always pay your bill in full to avoid interest and build trust.
Why it matters:
A business credit card helps you establish a credit profile for your business, and it can improve your credit score faster than just relying on loans.
4. Establish Trade Credit with Suppliers
One way to build business credit quickly is by establishing trade credit with suppliers or vendors. Trade credit allows you to buy goods or services now and pay for them later, usually with 30 or 60-day payment terms.
Here’s what you need to do:
- Apply for net-30 or net-60 accounts: These are credit terms that allow you to pay your invoice after 30 or 60 days.
- Buy from reputable suppliers: Make sure to choose suppliers that report to business credit bureaus (like Dun & Bradstreet or Experian) because their reports will help boost your credit score.
Tip: Even if your suppliers don’t report your payments to the credit bureaus, you can ask them to start doing so!
5. Build Your Credit Profile with Business Credit Bureaus
Your business credit profile is created by business credit bureaus (like Dun & Bradstreet, Experian Business, and Equifax). These bureaus collect information about your business’s credit behavior, and this affects your credit score.
Here’s what you need to do to build your profile:
- Get a D-U-N-S Number: This is a unique identifier for your business, issued by Dun & Bradstreet (D&B). You can apply for it for free on their website.
- Check your credit reports regularly. Review your business credit reports for any errors and dispute anything that’s incorrect.
Why it matters:
By establishing a strong credit profile, your business will be more attractive to lenders, and they’ll be more likely to offer you loans or lines of credit with better terms.
6. Pay Your Bills on Time (Every Time)
This might seem like an obvious tip, but it’s critical — paying your bills on time (or early) is one of the fastest ways to build business credit.
Most business credit scores are influenced by your payment history, which accounts for the majority of your credit score.
- Paying your bills early can boost your score even faster.
- Set up automatic payments to avoid missing deadlines.
Why it matters:
A solid payment history is key to a high credit score. Late payments or unpaid bills will damage your credit and slow down your progress.
7. Take Out a Small Business Loan or Line of Credit
Once your business has established some credit history, you might want to apply for a small business loan or line of credit to further boost your credit score.
Here are some options to consider:
- SBA Loans: The U.S. Small Business Administration offers loans with low interest rates.
- Business Lines of Credit: This offers flexibility to borrow as needed up to a certain limit.
- Microloans: These smaller loans are great for new businesses and can help you build credit faster.
Why it matters:
Taking on a loan or line of credit can significantly improve your credit score if you manage it well. Just remember to make timely payments!
Final Thoughts: Building Business Credit Fast Takes Time and Effort
Building business credit is a marathon, not a sprint. However, if you follow these steps and stay disciplined with your payments and business practices, you’ll be well on your way to strong business credit.
Key takeaways:
- Start by registering your business, getting an EIN, and setting up a business bank account.
- Apply for a business credit card and establish trade credit with vendors.
- Regularly check your credit reports and pay your bills on time.
- Consider applying for small business loans or lines of credit once you have a solid history.
Building business credit is one of the best things you can do for your business’s financial future. It will unlock better opportunities, lower interest rates, and ultimately help your business thrive.
FAQs: Frequently Asked Questions
1. How long does it take to build business credit?
It can take anywhere from a few months to a year, depending on your business activities and how regularly you pay bills.
2. Can I build business credit without using my personal credit?
Yes, as long as you establish your business as a separate entity and only use business accounts and credit lines.
3. What is a good business credit score?
A score of 75 or above (on a scale of 0 to 100) is considered good. However, scores may vary depending on the credit bureau.