Building your business credit takes time, but it’s worth the effort. It opens many doors as it plays a fundamental role in a company’s funding ability, allowing entrepreneurs to hire employees, purchase necessary equipment, machinery, and inventory, launch marketing campaigns, and maintain a steady cash flow while generating and growing revenue.

Up to 56% of small businesses seek financing. Yet, many get denied or receive only part of the amount due to a low credit score—and a lack of knowledge as far as how applying for small business loans affects your credit score.

But don’t worry. Read on to learn about how to build business credit score quickly.

What Is a Business Credit Score?

Like humans, businesses can have business credit scores and reports. A business credit score signals your firm’s ability to handle its finances, debt, and purchasing power. It’s a way of measuring business creditworthiness.

Business credit bureaus such as Dun & Bradstreet, Experian, and Equifax keep credit information records on businesses, such as debt repayment. The bureaus typically create credit reports when suppliers, creditors, insurance companies, or vendors report a company’s activity and accounts to them. It’s this information that informs you of your firm’s credit scores.

These organizations use your business credit score to evaluate your insurance application, business deals, or credit.

Steps on How to Start a Business Credit Score

You have to lay the foundation to establish business credit. This involves the following steps:

1. Choose the Right Business Structure

The first step towards starting a business credit score is making your business a legal entity. That means forming a corporation or LLC.

Remember, if you’re one of the 23 million US sole proprietors, you cannot separate the business from yourself, meaning you cannot start a business credit score. You have to use your personal credit score, which may not go well for you in the future.

After forming your business entity, ensure to register your firm. This depends on the location and structure of your business entity.

2. Obtain an Employer Identification Number (EIN)

EIN is simply a social security number for a business. The nine-digit number is crucial because it’s what you use to open your business bank account, file tax returns, apply for business credit, and apply for permits and licenses.

The good news is that you can easily apply for your business tax ID number for free on the IRS website and get it via mail or fax.

3. Open a Business Bank Account

Use your business’ legal name to open a checking account. This is the account you’ll use to manage your business money, help keep your books as accurate as possible, and simplify your taxes.

Pay all your transactions from the checking account. Also, pay all your credit bills from the checking account (if you have a business credit card).

A business bank account separates your business finances from personal ones. This goes a long way in improving your firm’s funding potential. Remember, banks use this account as a reference when applying for business credit. In addition, it provides vital data to lenders as they review funding requests.

4. Establish a Business Phone Line

A dedicated business phone registered in your business legal name line is necessary.

Lenders may require a company to have a business phone line with 411 directory assistance for them to fund your business. Having one portrays your business as legit and one posing fewer risks.

5. Establish a Line of Credit With Suppliers/Vendors

If you can work with suppliers or vendors who report to credit reporting agencies, the better. That way, these credit bureaus record any inventory, supply, or any other material you buy on credit. This information is what creates your business credit report and credit profile.

How much line of credit can I get for my business? That’s one of the first questions.

After applying for net payment terms, it’s a guarantee your suppliers and vendors will do the reporting.

Note that each relationship you have serves as a trade reference that you can use on future credit applications.

6. Get a DUNS Number

DUNS number is a nine-digit number you obtain through Dun & Bradstreet, identifying your business as separate from all other businesses in the world.

Creditors can find your business credit file and subsequently access your credit history through this number. In addition, credit-scoring systems can use the DUNS number to access this data and generate your business credit scores.

What Is a Good Business Credit Score for Your Business?

Business credit scores range from 101 to 992. The higher the credit score, the better your business is positioned to qualify for funding. A good credit score is 700 and above.

Note that regardless of the method the credit-scoring systems used, a good business credit score for your business results from the following:

  • Paying your bills on time
  • Avoiding too much debt
  • Staying out of legal trouble

Just ensure your business credit score doesn’t fall below 550 to avoid limiting yourself.

What Are Business Loan Credit Score Requirements?

Generally, business credit score requirements for SBA loans or a traditional bank are 680 or higher.

For equipment financing or business lines of credit, you require a business loan credit score of 630. Short-term financing requires 600, while merchant cash advances require a score of 550.

Remember, when it comes to small business loan requirements, your business credit score also influences other terms of your loan, including the interest rate.

How to Check Business Credit Score Free

In most cases, business credit bureaus will require you to pay for a full credit report. This must be bad news.

But you can check your business credit score for free. This only happens if you’re interested in your Dun & Bradstreet Paydex score, where you sign up for CreditSignal monitoring. However, you can only see your score for a few weeks before the site informs you that it has changed, either moving up or down.

Whether it’s Equifax Business Credit, Dun & Bradstreet, or Experian Business, you must pay to obtain your business credit report.

How to Improve Business Credit Score

To improve your business credit score, you must establish business credit over time. In fact, this is the fastest way to build business credit. It requires you to pay any existing net-30 trade accounts and any other lender on time. This is also how to build business credit for LLC.

Also, ensure your vendors report your good payment history to major business credit reporting agencies.

Other tips to help you build credit faster and improve your credit score are:

  • Pay your bills on time
  • Get a business website
  • Monitor your business credit scores and business credit reports
  • Update your business credit profile regularly and review it frequently for errors

List of Companies That Help Build Business Credit

One of the fastest ways to build business credit is establishing net-30 vendor accounts with companies that report to business credit reporting agencies. And as long as you pay on time, you will build credit references. These ultimately boost your credit scores.

You might also consider working with companies that help build business credit. These offer net-30 payment terms and report to major credit bureaus, helping build your business credit. They include:

  • Creative Analytics
  • Uline
  • Business Tshirt Club
  • Quill
  • Grainger
  • Ohana Office Products
  • Suma Office Supplies

Final Thoughts

Learning how to build your business credit score is imperative, as obtaining a business loan with low credit is next to impossible. If you’re a strategic business owner, you understand pretty well this is not about surviving one day after another. It’s about establishing business credit lines and earning good credit scores necessary to thrive long-term. Note that borrowing and lending are becoming increasingly competitive, and your most significant asset is your creditworthiness.

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About the Author, James Webster

James Webster, founder and Executive Chairman of ROK Financial has almost two decades of experience within the financial services industry. His passion for helping small business owners and his innovative way of thinking, has allowed him to run multiple successful businesses including National Business Capital & Services. Under the National name, the team was able to help secure over $1 Billion in financing for small businesses nationwide.