If you own a business, establishing business credit has benefits. By separating personal credit from business credit, you protect one of the main reasons to establish a corporation which is to protect your personal liability. Also, you’ll typically have access to more funding once you’ve established business credit. However, business owners often don’t know how to build business credit.
According to the Small Business Administration, it takes 12 to 18 months to build business credit. If you already have good personal credit, it is easier to establish business credit by following the steps below. However, if you do not, you’ll need to take some additional steps to learn how to build business credit without using personal credit. There are ways to get business loans with bad credit which will help you establish and begin building business credit.
Steps to Build Business Credit with or Without Good Personal Credit
Establish Your Business as a Corporation
If you are just starting your business, or you have a sole proprietorship or general partnership, you’ll want to incorporate. There are different types of corporations, however, so research the differences to decide what is best for your business.
You don't have to hire an attorney and spend a lot of money to establish your corporations. Visit Rocket Lawyer for help with the different types of corporate entities.
Apply for an EIN (Employer Identification Number)
Once you’ve set up your corporation, you’ll need to apply through the IRS for an EIN which is also called a Federal Tax ID Number. An EIN for a business is like a Social Security number for an individual. When applying for business credit you’ll be asked for your EIN. It will also be necessary for filing business taxes and opening a business bank account.
Open a Business Bank Account
If you haven’t already, it is imperative that you separate personal funds from business funds. The best way to do that is to open a business bank account. All revenue coming into your business and expenses paid out by your business should flow through this bank account.
Establish a Phone Number and Address for Your Business
You’ll want to set up a phone number and address for your business further separating your personal and business interests. If your business doesn’t have a permanent location or you operate your business out of your home, get a P.O. Box that has a physical street address. If you don’t want to get a separate phone line you can have a business number ring to your personal cell phone. A company that we use to do that is Vumber.
Apply for a DUNS Number with Dun & Bradstreet
You may be familiar with Experian and Equifax which track your personal credit. These 2 credit bureaus also monitor business credit. However, perhaps the best-known business credit bureau is Dun & Bradstreet. You have to establish your business with Dun & Bradstreet by applying for a DUNS (Data Universal Number System) Number. Vendors and suppliers that may extend credit to you will typically report to Dun & Bradstreet. By having a DUNS you’ll help your business build business credit.
Establish Lines of Credit and Trade Lines with Your Vendors
If you purchase supplies on a regular basis and pay your bills on time, you can ask your suppliers to set you up on a NET 30 account. This allows you to pay them within 30 days from delivery. But to have a NET 30 account to help you build business credit, your suppliers have to report to one or all 3 of the business credit bureaus (Dun & Bradstreet, Experian, Equifax).
Open a Business Credit Card Account
Now that you have a business bank account and EIN, you can apply for a business credit card. However, you may have to use your personal credit to do so. You can open almost any credit card account using your business information, but the card issuer will typically look at your personal credit history if you haven't yet established business credit.
If you have poor personal credit you can apply for a secured business credit card. A secured credit card account will require you to deposit funds into an account securing the credit card limit. Whether you get a traditional credit card or secured card make sure the card issuer reports to 1 or more of the 3 business credit bureaus.
Apply for a Business Credit Builder Loan
For years individuals with poor credit have been able to get a credit-builder loan. But now we can offer you a credit-builder loan with a bank partner for your business. This is perfect for the business owner with poor credit or low credit scores. The bank will issue you a small loan. They will keep the funds in an account while you pay back the loan. As you make payments they will report them to the credit bureaus helping you build business credit.
Pay Your Bills on Time
Establishing business credit is a positive step for your business. But you can do your business severe harm if you do not pay your bills on time. Vendors and creditors will report late payments to the business credit bureaus which will hamper your ability to get future business credit. And unlike consumer credit laws giving people the ability to repair their credit reports, there are no such laws for business credit. Once you have negative marks on your business credit report, they are likely to stay there, long term.
This article which was originally posted in 2021 is updated regularly and was last updated in July 2023.