One of the most difficult things about managing a small business is keeping cash flow positive. You may have to borrow money to make up the difference when the flow becomes barely noticeable. If you want to finance an expansion project, you could also need to take out loans.
Favorable interest rates and quicker loan and credit line qualification are two benefits of having good company credit. It's critical to comprehend how business credit operates and what you may do to raise your credit score if you're just starting out.
The Significance of Business Credit
When you need to borrow money, business credit can help you qualify for loans or credit lines. This is how business credit works, much like personal credit. It may also be simpler to get accepted for credit lines through your suppliers and vendors if your company has a solid credit history.
Being able to access finance and funding as a business owner can play a factor in your overall success. For example, if a client fails to pay their bill on schedule and you require funds to pay your staff' salaries, you can use your excellent credit history to obtain a short-term loan. Likewise, managing your company's cash flow may be made simpler if you can finance the purchase of materials or hire vendors for services.
When you borrow money, having good business credit might also save you money. Your chances of being eligible for the best rates on loans and vendor financing increase with your credit score. Credit checks are usually not required for business bank accounts.
How to Check and Monitor Business Credit Scores
You have a few options if you want to examine your credit ratings and company credit profile. It's crucial to remember that each of these businesses may have a unique method for gathering and arranging company credit data.
Bradstreet and Dun
Businesses with a credit file can obtain free credit reports and scores from Dun & Bradstreet (D&B). An initial need for creating a credit file with Dun & Bradstreet is obtaining a data universal numbering system (DUNS) number. This nine-digit number is used to uniquely identify your company. The D&B website allows you to apply for a DUNS number at no cost to you.
After completing that, CreditSignal will provide you with access to your D&B PAYDEX score. When you register, you'll also receive free credit monitoring. PAYDEX scores are based on past payment history and range from 1 to 100. A higher score suggests that there is a greater likelihood of on-time bill payment for your company.
Equifax Commercial
Businesses across a range of industries, such as financial services, healthcare, manufacturing, and retail, can obtain business credit reports from Equifax. The purpose of the Equifax Business Credit Report is to assist you in identifying potential credit risks, both present and future, to your company.
Equifax Core Credit offers a free credit score every month. Viewing your latest Equifax Business Credit Report is another option. For additional information, you must fill out the contact form available on the Equifax website.
Experian Enterprise
Experian provides rapid internet access to credit reports for small businesses. By entering the name and address of the company, you can check the business credit of your company or any other company.
You may also want to think about signing up for Experian Business Credit Advantage if you would like to monitor your credit on a frequent basis.
How to Create Business Credit
When establishing business credit, it can be beneficial to know where to begin. These are the steps you can take to make a business profile.
1. Get an EIN and register the business
On paper, your firm is lawful if it is registered with the appropriate authorities. Depending on your business structure and the state rules in effect, you may need to formally register.
Additionally, you might have to submit an application to the Internal Revenue Service (IRS) for an Employer Identification Number (EIN). This number is used by the IRS to identify your company for taxation purposes. An EIN application is available on the IRS website.
2. Open a bank account for your business
While having a business bank account is beneficial for a few reasons, it's not always necessary to acquire business credit. Establishing a distinct bank account for your business gives it more credibility. Moreover, it facilitates the separation of company and personal spending, which can be useful during tax season.
To open a business bank account, you might be required to supply your EIN. When choosing a bank, it's also useful to look into fees, additional account features, and minimum beginning deposit requirements.
3. Get your DUNS number
As was already indicated, in order to create a business credit profile with Dun & Bradstreet, you will require a DUNS number. This number is available for free internet requests.
You don't have to ask Equifax or Experian for a specific identifying number. Once businesses you borrow money from record your account activity, the credit bureaus can start constructing your business credit profile.
4. Take a Look at Credit Cards for Businesses
The purpose of business credit cards is to facilitate the acquisition of necessary items to maintain the operations of your firm. It is usually not necessary to have any business revenue in order to get authorized for a business credit card based on your personal credit scores.
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When comparing business credit cards, keep the following in mind
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If there is a rewards program on the card, awards
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Fees, such as the foreign transaction fee and the annual charge
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APR, or annual percentage rate, is applied to balance transfers and purchases.
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Even though your credit limit was initially low, you can raise it by paying your card in full each month and on time.
5. Establish Credit with Vendors
Getting a small company loan might not be possible right now if you're just starting out with your business credit. On the other hand, you might be able to obtain credit lines via your suppliers or merchants.
Vendor credit, often known as trade credit, enables you to purchase goods from your suppliers now and pay for them later. Your account history can assist you in establishing business credit if your vendors submit information to Dun & Bradstreet or another credit agency.
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Tips for Maintaining a Good Credit Profile
The maintenance of excellent personal and company credit is largely dependent on responsible credit use. These pointers can assist you in keeping your credit score stable while you establish business credit:
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Avoid taking on excessive quantities of debt that you can’t afford to repay from cash flow.
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Maintain a modest credit use rate on business credit cards—ideally, less than 30%.
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Pay all of your invoices on schedule, including debt repayment and payments to suppliers and vendors.
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Keep a close eye on your company's credit history to spot any alterations that could be detrimental to your credit rating.
It can take some time to establish business credit, therefore it's critical to maintain consistency in your good financial practices. When trying to raise your credit score in order to get a business loan, keep in mind that a lender may also take other criteria into account. Your time in business, annual revenues, and the industry that you’re in may all influence your capacity to receive funding.
How Can I Establish Business Credit the Quickest?
Since you don't need a business credit history to apply, opening a business credit card is one of the quickest ways to build business credit. Even if your firm hasn't made any money yet, credit card companies can still accept you based on your personal credit reports and ratings. Using a business credit card to establish strong business credit requires timely payments and low credit utilization.
Can I Apply for a Loan Using My EIN?
Employer Identification Numbers, or EINs, are acceptable to lenders when submitting an application for a small company loan. Depending on its lending standards, a particular lender may utilize your Social Security number or EIN to examine your credit. Remember that some business owners—sole proprietors, for example—might not require an EIN. Then, you would use your Social Security number to apply for loans.
