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Building Business Credit

Establishing Business Credit

Why?

Early in the life of a business, founders generally have to guarantee any loans or lines of credit for a business. Having business credit will allow the business to secure funding without resorting to the credit history of the owners.

 

Form a Business Entity

To obtain a credit profile, a business must have a separate identity from the owners of the business. See our lecture series on choosing and forming a business entity.

 

Obtain a State and Federal EIN

Obtaining an EIN will provide a record of income and tax payments. See our lecture on obtaining an EIN.

 

Establish a Business Bank Account

Opening a bank account will provide a record for payment transactions. See our lecture on obtaining a bank account.

 

Start a Business Credit File

Several credit rating agencies provide business services: Dunn & Bradstreet, Experian, Equifax and TransUnion.

 

Obtain a Line of Credit or Business Credit Card

Obtaining lines of credit or business credit cards demonstrates responsibility. It provides proof of use of funds and payment of debts. Be careful not to open credit accounts too rapidly. This can actually hurt a credit score. Start by developing two or three credit sources. Use these sources regularly and make prompt payment on any debt. Note: The most advantageous type of loan is an unsecured loan. This type of loan may be difficult to obtain early in the life of a business.

Make Timely Payments

Like a personal credit history, businesses must make timely payments on all obligations. Failure to make payments or late payments are recorded and can harm a business’s credit rating.

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