Establishing Business Credit

Let's start by talking about your business credit score. Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent.

The ABCs of Business Credit

Learn why it's important to establish a business credit report separate from your personal credit and just how to do it. 

As an entrepreneur, did you know you have a unique opportunity to build, maintain and acquire credit both individually and as a business owner? That's good news if you're trying to build and grow a company because you won't have to rely solely on your personal credit to do that.

As a member of the business credit industry, it's been our experience that fewer then 10 percent of all entrepreneurs know about or truly understand how business credit is established and tracked-and how it affects their lives and businesses.

So let's first take a look at how personal credit differs from business credit. Then we'll discuss some steps you can take to build your business credit.



Personal Vs. Business Credit

At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies . This profile, otherwise known as a credit report, is added to with every credit inquiry, credit application submitted, change of address and job change. The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual's ability to pay back a debt.

In some cases, the same is true for businesses. When a business issues another business credit, it's referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS. The business credit bureaus use this compiled data to generate a report about your company's business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they'll give.

The major business credit bureaus that compile and provide copies of the reports are:

  • Dun & Bradstreet
  • Experian Business
  • Equifax Business
  • Business Credit USA

Unfortunately, because the information provided to the business credit bureaus is sent in voluntarily--no business is required to send it in--the credit bureaus may never receive all or even any information about your business credit transactions. In fact, you could go for years racking up business credit without any of it being reported to the credit bureaus.


Establishing Business Credit

Let's start by talking about your business credit score. Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent.

It's important to note that there are many factors that affect a credit score; it's based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you've had a credit profile, the number of inquiries made on your credit profile and more.

The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score.

Why is that? The average consumer credit report gets just one inquiry per year and has 11 credit obligations, typically broken down as 7 credit cards and 4 installment loans. Business owners are not your average consumer, however, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact their personal credit score. And because business inquiries and personal inquiries aren't separated on their personal credit report, the scores, again, is negatively affected. At the same time, by using their personal credit history to get business credit, they're not able to build their business score, which could help them attain critical business credit in the future.

The key to establishing a business credit profile and score is to find companies that will establish credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper agencies, they'll help you establish your business credit profile.

The following are the basic steps you need to take to establish your business credit profile and score:


1. Form a corporation or LLC to operate your business under and obtain an FIN or EIN from the IRS. You can apply for an EIN number at the IRS website.

We are suggesting you form a corporation or LLC as opposed to structuring your business as a sole proprietorship or partnership because with a sole proprietorship or partnership, your personal credit information could be included on your business credit report--and vice-versa. In addition, as a sole proprietor or partner in a partnership, you're personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLCs, on the other hand, afford business owners liability protection, and you can build a business credit profile that's separate from your personal debts. You may be able to apply for credit under your business's name and obtain credit without a personal credit check or guarantee if the credit grantor will do so--and it's been our experience that often all you have to do is ask.

2. Register your company with the business credit bureaus.

3. Comply with the business credit market requirements. It's extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn't taken the steps to set the company up with the proper licenses and local, state and federal requirements. 

4. Prepare financial statements and a professional business plan.These documents are often required by many credit grantors.

5. Find companies willing to grant credit to your business without a personal credit check or guarantee.

When a company grants your business credit, be certain they report the payment experiences you have with them to the business credit bureau to help build your business credit report and a financial foundation for your company.

6. Manage your debt so you don't fall into trouble making your payments, which will negatively affect your credit score.

7. Make monthly payments to credit grantors to keep your business credit profile active.

At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.

What stage is your business in? Just Starting? Existing? Buying a Business?

Just Starting a Business... Then building business credit is perfect for you. It's critical for newer businesses to have access to credit and capital. With our knowledge and expertise you will be able to start out on the right foot and give your new business every financial advantage. Simply contact us to get started.

Have an Existing Business... Even if you've been in business for 10 years you may not have a business credit profile! Whether you do or not, our system will instantly show you the current status of your business credit profile and then quickly walk you through the next steps to either establish, optimize or fix it.

Buying a Business or Franchise... If you are buying a business you should first form a new entity for the purchase. Our legal formations partner can help! Then you'll want the new business to have strong business credit scores so that once your sale closes, you are ready to jump right in.

Build strong business credit scores the fastest possible way with all three agencies and make thousands of dollars in credit available to your business!

 For lenders to approve you there are 20 compliance items that need to be completed first.
Your business must have completed all 20 compliance items before lenders can approve your business financing request. 

 Lenders want your business to have open files and good scores with all 3 national reporting agencies.
Your business must have a file open with all three national business credit agencies;

 Dun & Bradstreet, Experian Smart Business Reports, and Equifax Small Business Financial Exchange. We can get them set-up.

 Your business must have 5 vendor lines of credit that report credit history.
There are over 500,000 vendors extending credit, but only 6,000 that report to the business credit agencies. You can obtain thousands of dollars in vendor credit lines, not based on your personal credit.

Your business must have 3 business credit cards that report. 
There are over 500 business credit cards, but only 40 will issue a card without using your social security #. You can get approved for thousands of dollars in business credit cards that do not appear onpersonal credit reports.

 Once you have built strong business credit scores you can access much more financing.
We show how to get approved for your first business bank loan. A reporting bank loan puts your business "on the map" as far as every other business lender is concerned. Then hundreds of thousands in business finance and lending starts to become available: vehicle financing, equipment leases, and true business loans and lines of credit.