SKIP AHEAD TO:
Building Business Credit Course
SKIP AHEAD TO:
Building Business Credit Course
How to Establish Business Fundability
Establishing business fundability means proving to vendors, lenders, and credit issuers that a business is a legitimate entity separate from its owners, and is capable of paying back its debts.
This, paired with a strong business credit score will help your business get loans, credit cards, and secure other lines of credit.
There are several steps you can take to ensure your business establishes and maintains proper legitimacy standards.
- Use the exact legal business name (including any DBA filings) on all business documents.
- Set up your business as a separate legal entity. We recommend setting up your business as a limited liability company (LLC).
- Get an Employer Identification Number (EIN) for your business. This is a federal tax identification number.
- Get a business bank account. Make sure to keep business accounts separate from personal accounts, or else you will pierce the corporate veil.
- Establish a brick and mortar address (i.e., no P.O. box, no UPS address, no residential address).
- Get a dedicated business phone line with a 411 directory assistance listing. Insurance companies, vendors, lenders, and credit issuers will verify this before deciding to issue you credit. A cell phone will usually get you flagged, and you’ll most often get denied credit.
- Get a business website. Make sure your contact information is correct and matches your legal physical address.
- Ensure all business licenses and filings are current and contain the correct business address and business name. This includes the Internal Revenue Service (IRS), the Secretary of State, and other state and local agencies that you must file regularly with.
Register for and Pull Business Credit Reports
Just like with your personal credit report, business credit lines are also reported to various business credit reporting agencies. There is even a FICO score for businesses that most business owners do not know about. Here’s how you can establish and manage your business credit reports.
Step 1: Know the credit reporting agencies that matter most:
- Fair Isaac Corporation (FICO) Small Business Scoring Service (SBSS) Score (scores creditworthiness from 0-300).
- Dun & Bradstreet PAYDEX Score (scores creditworthiness from 0-100).
- Experian Intelliscore Plus Credit Score (scores creditworthiness from 1-100).
- Equifax Payment Index Score (scores creditworthiness from 1-100), Business Credit Risk Score (scores risk from 101-992; the higher the score, the lower the risk), and Business Failure Score (scores risk from 1,000-1,610; the higher the score, the better likelihood your business will still be around in 12 months).
Step 2: Establish a credit account with Dun & Bradstreet:
Dun & Bradstreet is the main credit reporting agency for businesses. Getting an account setup isn’t complicated, and it doesn’t cost anything, but will ensure you start getting trade lines as you establish and build credit with vendors and other creditors.
- Visit Dun & Bradstreet to get a D-U-N-S number. This establishes your business account with Dun & Bradstreet).
Recommended: Check out our free guide on how to get a D-U-N-S number so you can build your business credit faster.
Step 3: Pull your credit reports and check you FICO score:
Step 4: Fix business credit errors and discrepancies:
- Check each credit report thoroughly.
- Note any wrong information.
- Dispute errors and inconsistencies with each credit reporting agency.
- Make sure to update your business information (e.g., business phone number, website, address, etc.)
- Check your reports regularly to ensure accuracy.
Important: Privacy laws protect personal credit; however, business credit is not protected, and anyone can gain access to your business information.
Establish Starter Vendor Credit Trade Lines
If you are a new business or a business that hasn’t yet established lines of credit, you likely have no credit history and therefore will need to first establish some credit with starter vendors. This is an important first step because these starter vendors will help you build credit and establish trade lines with Dun & Bradstreet and other business credit reporting agencies.
Vendor credits are Net 30 accounts, indicating that you have 30 days from the date on the invoice to pay the balance in full. The earlier you pay off these accounts, the better. Don't be late, or it can negatively impact your business credit rating.
Here is a list of net 30 starter vendors:
- Uline.com (shipping supplies and useful equipment)
- They report to Experian and Dun & Bradstreet, but your order must be higher than $50 for them to report it.
- Quill.com (office, cleaning, and packaging supplies)
- They may require a $100 prepaid order before they will extend a net 30, but in any case, you'll need to have a Dun & Bradstreet PAYDEX score established. For them to report, you'll need to place a $500 or higher purchase. To qualify, you will also need a website with a custom email address.
- Grainger.com (industrial supplies like hardware, power tools, pumps, etc.)
- Reports to Dun & Bradstreet but will require that you are in good standing with the Secretary of State.
Here are some additional net 30 starter vendors to consider (n.b., prerequisites are that you have filed with the Secretary of State, have a D-U-N-S number, and that your business phone number is listed in the 411 directory):
Important: Set up a minimum of three vendor credits to ensure you have three different trade lines listed on your Dun & Bradstreet credit report. This will help your business credit score rise, which will be useful when you need larger credit lines in the future.
Build Retail Credit Relationships
In addition to setting up starter net 30 accounts, another way to build business credit is to apply for and use in-store credit cards for businesses provided by various retail outlets.
It will take ninety days after you have set up multiple net 30 vendor credit accounts before you can apply for in-store credit cards. Companies like Staples, Costco, Home Depot, Lowes, and others will only approve you for their branded business credit cards once you have proven you can pay off these starter vendor accounts.
To apply for in-store business credit cards, follow these steps:
- Decide which cards will best suit your business’s needs.
- Visit the stores directly and inquire about getting a store-branded business credit card.
- Fill out the application form.
- Do not use your Social Security number; instead, use your Employer Identification Number (EIN).
- Turn in the application to the associate who helped you get it.
- Wait for your card to come in the mail.
Important: Make sure to pay off the card balance in full each month to ensure you keep building business credit.
TIP: Make sure the stores you apply to for store credit report your payments to the various business credit bureaus (not all do).
Acquire a Working Capital Loan
Once you have proven you can handle paying off lines of vendor credit each month, a good idea is to get a working capital loan. A working capital loan is a line of credit between $500-$500,000 that a bank will extend to your business to help pay off utilities, supplies, payroll, rent, and your net 30 charge accounts each month.
You’ll be able to borrow the amount of money you need to pay these debts in full and then pay the bank back according to your repayment schedule. This is also known as a revolving credit line, as you can continue to borrow on an ongoing basis or as needed.
Follow these steps to set up a working capital loan:
- Contact a bank to inquire about a working capital loan.
- Find out all the terms and conditions and what the interest rate will be.
- Check around with other lenders to find the best terms.
- Make sure your credit is solid; meaning, you’ve paid your accounts in full each month, and your credit score is high enough to qualify for a working capital loan.
- Apply for the loan.
Get Business Credit Cards
You can get a business credit card with just an EIN. You don’t have to give your Social Security number, but do make sure you’ve followed the above steps outlined in this article, so you have a good business credit profile and high business credit score.
Take these steps to get a business credit card:
- Research various business credit card options online. There are many types of cards offering different terms and benefits).
- Select a business credit card offer that will benefit your business most (e.g., frequent flyer miles, low APR, cash back rewards, concierge services, higher lines of credit, etc.).
- Apply for the offer by filling out the business credit card application form online. Be sure to use your EIN and not your Social Security number).
- Wait for a response to come in the mail. This usually takes a week or two.
- Start using your new business credit card and be sure to pay the card balance in full each month.
The more you use your business credit card, the more you build your business’s creditworthiness. As your business credit improves, you can request higher credit limits and even apply for other business credit cards.
Pay All Bills and Credit Lines on Time
Build your business credit by paying all your vendors, lenders, and creditors on time (or better yet—early). This will ensure you continue to build your business credit and thereby increase your lines of credit.
Here are some tips to help you pay all your bills on time:
- Prioritize bills by importance (e.g., taxes, payroll, aged payables, utilities and rent, key vendors and suppliers, secured debts, insurance premiums, large debts then smaller debts, credit cards, other business debts like advertising, etc.)
- Pay at least the minimum payment for all of your bills.
- Set up reminders on a calendar app (e.g., Google Calendar) to remind you when bills need to be paid.
- If possible, pay all balances in full each month.
- If possible, pay bills early. This will help your business credit score.
- If necessary, use a working capital loan to pay your bills each month, then pay this balance with your business bank account. This will help you manage your cash flow better while building your business credit profile.