Why don’t more small business owners establish credit for their businesses?

The likely answer is because many don’t know how to get started and where to find the right credit sources. We all pretty much know how personal credit works and what it takes to build positive FICO® scores.

The good news is the process of getting business credit is not all that different from building your personal credit. Today we’re going to simplify the business credit building process in five easy steps.

Step 1- Set up a formal legal structure for your business

Most small business owners start out as a sole proprietorship but the benefits of converting to a formal structure such as a limited liability company or corporation has many advantages. First, it formally separates you from your business which is one of the staples to building business credit. It’s about separation between you and your business both from a liability and financial standpoint.

As an LLC or corporation you protect your personal assets and have more privacy. As a sole proprietor you use your personal information and social security number for everything in the business. As an LLC or corporation you use your company’s information and can even use a registered agent for the company address.

Your Employer Identification Number (EIN) is used instead of your social security number on all aspects of the business such as on credit applications, business bank accounts, business credit files, etc.

Step 2- Set up operations

Unfortunately, when it comes to setting up a business many small business owners fail miserably because they don’t have any real practical experience in setting up operations.

For starters, begin by setting up the phone number, address and bank account for the business. If you don’t have an actual storefront or office location, you can still run your business from anywhere and still have a qualifying business address by using a virtual office solution.

Next, establish the company’s web presence by first registering a domain name then setting up a company website and dedicated email address. Although these are just a few of the steps to setting up operations it by no means covers it all. Other crucial areas include but are not limited to knowing your numbers, setting up budgets, forecasts, technology, product fulfillment, customer retention, etc.

Step 3- Get a D-U-N-S Number

The most widely used and recognized number for identifying businesses in the U.S. and abroad is the DUNS Number. The DUNS Number (nine-digit number) works like a corporate version of your personal Social Security number. It’s an essential part of establishing your company’s credit identity and profile.
Once you obtain a D&B D-U-N-S® number other companies, vendors, suppliers and creditors will be able to validate your business using your DUNS Number. You’ll supply this number on credit applications or when companies need to verify your company’s credentials and business credit report.

Step 4- Obtain trade credit and revolving lines of credit

You can start acquiring credit for your business once a formal legal structure is established, business operations are in place, and the company has a DUNS Number.

For starters consider applying for credit with vendors and suppliers that cater to start-ups and small businesses with little to no credit history. These are known as starter vendors which usually offer net 30 day account terms and will approve almost any business for credit.

Once you open an account with a starter vendor, be sure to use the credit line on a consistent basis to grow your business and pay your invoices on time. This will enable you to build payment history and strong business credit ratings.

Step 5- Add existing trade references to your profile

Getting new credit is not the only way to start establishing credit for your business. The absolute fastest way to build your company’s credit file is by adding existing trade references to your D&B business credit report.

In reality, not all vendors and suppliers share payment data to a business credit reporting agency. If your business has a credit account with a non-reporting vendor or supplier then consider purchasing D&B’s CreditBuilder™ so you can add positive payment experiences to your file.

Please note: D&B will not allow you to add the following trade references:

  • Payments you haven’t actually made but plan to
  • Payments to another business where you are an owner or partner
  • Financial services: banks, credit unions, and insurance
  • Bank references
  • Utilities and gas companies
  • Credit card companies
  • Landlords
  • Virtual offices
  • Credit counseling or registered agents
  • International companies
  • Company with an unknown business SIC Code

The Bottom Line

How your overall business is seen by lenders, suppliers, and vendors are crucial to maximizing your funding potential. By building strong business credit files and scores the easier it will be for lenders to assess the creditworthiness of your business.

Looking for a step-by-step business credit building plan? Snag a copy of our Business Credit Secrets e-book, and learn the steps to making drastic strides towards securing funding to exponentially grow your dreams.

Check it out, and join the movement of entrepreneurs just like you.

Until next time.

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