10 Best Strategies for Building Business Credit Fast
We’ve broken down how to build business credit into 10 steps. The first five steps are foundational steps. You’ll need these to establish your business as a formal business structure and to be taken seriously by lenders.
The second phase includes the essential steps for building business credit. They're the necessary measures you need to take to get lenders to give you a loan.
Finally, while the third phase is not necessary, these strategies seem to expedite the credit building process to help you build business credit fast, making you much more lendable.
Establish Your Business
These first five steps for building business credit fast are meant to establish a foundation for applying for and being approved for business credit cards and business loans as quickly as possible.
1. Form an LLC
Most lenders and banks require that a business is set up as a legal entity before they will extend business credit.
Why do banks and lenders prefer legal business entities? Having a legal entity in place protects business assets which in turn, shields the lender from risk. This is because legal entities offer limited liability protection which creates a legal separation between the business and the business owner.
For example, if a business owner is subject to a lawsuit, and has an LLC in place, it is far less likely that the business's assets or operations will be impacted.
In turn, the business owner's personal assets will also be protected by having formed a legal entity since the business now has its own legal business name. A limited liability company (LLC) is a good way to protect your house, car, and personal bank accounts in the event that your business is sued or defaults on a debt.
Forming an LLC is the simplest and most affordable legal business entity that offers limited liability protection. For businesses that require capital from outside investors, we recommend reviewing our LLC vs. Corporation guide.
2. Get an EIN
The IRS requires most businesses to obtain an Employer Identification Number (EIN). This is like a Social Security number for small businesses. Just like your Social Security number is attached to your personal credit profiles, an EIN is attached to your business credit profiles. When lenders check your business credit, they use this number to check your creditworthiness.
All banks will require an EIN to open a business bank account. Having one of these will ensure your business starts a credit trail not connected to your Social Security number.
Read our EIN guide to learn how to get a free EIN.
3. Get a Business Bank Account
A business bank account separates your personal finances from business finances. This is critical for upholding limited liability protection and building a business credit file separate from your personal credit history. Lenders, banks, and creditors often use business bank accounts to determine eligibility for loans and other forms of credit.
Keeping a business bank account also brings transparency to your business finances, making it easy for lenders to determine how much your business is worth and, given your past spending habits, how likely your business will be able to repay the loan.
Having the right business bank account is crucial. You want one that offers good terms, flexibility, and support for your business in the long term.
4. Get a Business Website
Having a business website makes it extremely easy for lenders to find out about your business credit and this plays a role in their decision-making process when deciding to approve your business for a loan. If you don’t have a proper business website, it raises a red flag for prospective lenders.
The more professional and easily navigable your business website is, the better. Lenders want to understand your business. Your website should reflect what your business does, who its customers are, where it is located, what its products and services are, and provide a visual snapshot of your business.
5. Get a Business Phone Line
A dedicated business phone line is one way to establish business credit and improve your business credit score. Lenders do background checks to determine if you meet certain business credit criteria — one being having an established business phone number listed on online citations, your website, social media platforms, etc.
The best type of business phone line will depend on what kind of business you run. For example, if you’re running a small business, you might consider buying a VoIP service. This would allow you to set up a virtual office number that customers could call directly without having to dial long-distance numbers.
To find the right business phone service for your business, read our review of the best business phone services.
Start Building Your Business Credit
Once you've established a foundation, it’s time to start building good business credit quickly by partnering with companies that help build business credit. As you build business credit, it likewise helps you build up good credit scores.
Each step below builds off of the steps before it. We recommend following the steps in order to build business credit as quickly as possible.
6. Establish Net 30 Vendor Accounts
Net 30 accounts allow you to order products from a vendor, in return, they invoice you for your order, and then you have 30 days from the invoice date to pay them. Most net 30 vendors report these payments to the major business credit bureaus. This helps you establish tradelines on your business credit profiles to start building your business credit.
And so long as you pay on time or, even better, early, you’ll be working toward improving your business credit scores. The better your scores, the easier it is to get a business loan later.
Our Net 30 Vendors to Build Business Credit guide is a resource for finding and setting up net 30 accounts with vendors who report to the business credit bureaus.
It is recommended you have at least five net 30 vendors reporting to the business credit bureaus. We recommend starting with Office Garner because they report to multiple business credit bureaus, like Dun & Bradstreet*, Equifax Small Business, Creditsafe, and SBFE.
*Dun & Bradstreet reporting requires Office Garner's Credit Builder service.
7. Get a Business Credit Card
The length of time you’ve been in business and your monthly revenue determines how much credit you can get approved for. It also determines whether you’re granted a secured business credit card or an unsecured business credit card.
A secured business credit card requires a deposit equal to the amount you’re able to spend on the card each month. An unsecured business credit card does not require a deposit and has a limit set by the lending institution or issuing bank.
Making regular payments on time without spending more than 50% of your credit card limit ensures you’ll qualify for higher credit limits over time. This is how you build business credit fast, by making regular, on-time (preferably earlier) payments, and using your credit responsibly to advance your business. The major business credit reporting agencies will also reward you for these higher lines of business credit.
Some business credit card companies, like Divvy, offer both unsecured and secured cards. With a company that offers both, there is normally just one application process and almost everyone is approved, immediately.
8. Apply for In-Store Credit Cards
In-store credit cards let you purchase merchandise from stores you visit regularly. These cards are like regular credit cards but they only let you purchase products from the stores you have cards at.
Similar to secured business credit cards, in-store credit cards are easier to get than unsecured credit cards, making them a good credit-building strategy for small businesses. The major business credit reporting agencies will update your business credit scores to reflect this better credit history.
9. Ask for Higher Net-30 Credit Lines
The ratio of your net 30 account balance compared to your credit line maximum creates your credit utilization score. Lenders like to see a low ratio of credit balance to the credit limit. The higher your limit and the lower your balance, the better your credit utilization score. And, as your credit utilization rating improves, so does your business credit score.
This will give you access to more credit and more favorable lending terms.
Request increases in your net 30 credit limits with the net 30 vendors you currently do business with. Assuming you’ve paid your net 30 invoices on time for at least six months, you should be approved for higher credit lines. This will also help your business credit report.
10. Apply for a Business Loan
Business loans give you access to larger amounts of capital. Business owners use this capital to grow their companies quickly.
Being approved for business loans with the best terms is the ultimate goal of building business credit. By having followed the steps above and making payments on time, you've set yourself up for approval for the best business loans.
Check out our Lendio business loan review to learn more.
Other Credit Building Considerations
These final strategies aren't necessarily required, but following them can help speed up your business's credit-building process even more.
Get Business Insurance
Business insurance is important because it protects your assets against loss or damage. Creditors check to see if your business is insured or not. If you are, it means less risk of your business defaulting on repaying the loan, improving your chances of getting a loan.
A good insurance policy will cover things like property damage, general liability, workers’ compensation, and commercial property.
You should always choose a reputable insurance provider when purchasing business insurance.
Get a DUNS Number
A DUNS number is a unique identifier used by Dun & Bradstreet to track companies across industries. The D&B database includes information like company size, industry, revenue, net worth, and more.
You need a Dun & Bradstreet business profile to establish lines of business credit and build a solid business credit history. This is one of the first places creditors check to decide if you're creditworthy or not.
Create Social Media Accounts
Social media is a free way to promote your business. Facebook, Twitter, LinkedIn, and Instagram are the top social media sites you should focus on. Each site has different benefits, but in general, they’re all free and easy to use.
The main benefit all have in common is they show transparency, giving your business a voice that provides legitimacy to loan officers.
Tip: LinkedIn is the best social networking platform for businesses and is the first social media account we recommend opening and staying up to date with.
Pull Your Business Credit Reports After 6 Months
Wait six more months and pull your Dun & Bradstreet, Experian Business, and Equifax Small Business business credit reports. Make sure your business credit reports do not have any derogatory marks and that your business credit scores are excellent.
Pulling credit at the six-month mark will allow enough time for the reporting bureaus to collect the data needed to present an accurate credit report. Knowing your credit history as it relates to the credit bureaus is beneficial because you can adapt your strategy to the new information if needed.
Ask for a High-Interest Small Business Loan
At this point, being approved for a high-interest small business loan is a possibility if you’re not asking for too much capital. If you take out one of these loans and pay it back fast, it shows more legitimate lenders you’re capable of paying back their loans (for higher capital amounts).
Important: These types of loans are often considered predatory because of high interest rates, fees, and penalties. With that said, when used wisely and carefully, high-interest loans will benefit your overall strategy. We recommend having the money set aside in a reserve account to ensure you pay the debt back on time.
Apply for a Working Capital Loan With Your Bank
A working capital loan is meant to help with a business’s operating expenses during times of low revenue.
The lender will pull your personal credit report and review your business bank account and financials. Based on this information, they will approve or reject your loan application. Capital loan lenders then report the loan repayments to the business credit bureaus. As long as payments are made on time, this will improve your business credit rating.
Tip: Use a working capital loan to pay your bills each month, then pay this balance off with your business bank account. This will help you manage your cash flow better while continuing to build your business credit profiles.
Why Is It Important to Build Business Credit Fast?
The main reason it is important to build business credit fast has to do with cash flow. Did you know that over 80% of businesses fail because of cash flow shortages? This single problem could be easily avoided if a business were to build business credit fast and thus resolve its cash flow problems. This isn’t the sole reason why you should build business credit fast, but it is the most important.
Here are some other benefits of building business credit fast:
- Grow your business faster. When you build business credit fast, you can leverage debt faster (i.e., other people’s money ([OPM]), which is how to grow your business fast.
- Get faster financing. When you have great business credit, you can get approved much faster for new loans.
- Get higher lines of business credit. Lenders love to extend credit to businesses worthy of credit.
- Get better financing terms. Like with personal credit, the better your credit score and, the more credit you have, the better the interest rates and other terms.
- Keep business and personal finances separate. This protects your personal assets and credit should your business, unfortunately, run into problems (e.g., legal, credit, bankruptcy, etc.).
- Track expenses easier. Having a business credit card can help you monitor and track spending as well as a business checking account does.
- Make tax time less taxing. There are numerous tax incentives for borrowing money to grow your business. You can deduct interest for short-term loans and lines of credit. You can hand over all this information to a certified public accountant, and they can easily make sense of everything, getting you the best tax breaks.
Final Advice for Building Business Credit Fast
Now you understand the importance of building business credit fast. You understand the preliminaries and even how to build business credit fast. The only thing left is to take action and start implementing the practical advice we’ve laid out for you. Before you do, however, here is some final advice to help you build business credit fast.
- Pay all your bills early, always. Paying them on time is good, but it won’t earn you an excellent business credit score rating, just a good one.
- Make sure your business is fundable. Fundability is ensuring your business can get business credit. You’ll want to learn more about how to build business credit first.
- Do your due diligence. Start by asking yourself some questions: How do I get business credit? Is business credit based on personal credit? How do I build up my business credit without using my personal credit? Questions like these will guide you as you learn more about building business credit.
- Find out about small business loans through the Small Business Association (SBA). The SBA offers 7(a) loans that can go a long way in helping small businesses build business credit faster.
- Think of building business credit as building relationships with other companies and institutions. The more effort you put into building the relationship, the more you get out of it.
- Check your business credit reports regularly. Mistakes in reporting happen. For this reason, we recommend checking your business credit reports monthly to ensure all information is correct.
- Monitor public records. Potential lenders will check your business out thoroughly before deciding to extend a line of credit to you. Make sure your company is in good standing and compliant with all reporting requirements, etc.