8 Tips to Establish Business Credit and Get Financing

8 Tips to Establish Business Credit and Get Financing

Have you been denied business financing? More than 50% of small business owners who apply for financing get nothing. Personal and business credit scores are the primary cause for denial.

If you haven’t established strong business credit, now is the time to start.

In 2005, I received a rejection letter for business financing. My personal credit was spotless, so I figured it had to be a mistake. After some digging, I discovered that it was actually my business credit report that disqualified me for the loan. (It had mismatched business data, a red flag to lenders.)

Once I cleared up that error and began to build my business credit profile, I was able to access capital that made running and growing my companies easier. Managing cash flow was no longer a nightmare, and I could actually capitalize on growth opportunities.

Over the past decade, I’ve learned the steps needed to establish business credit the right way. You may have already taken care of some of these, but you’ll want to make sure each one is checked off.

1. Put your business on the map

Establish your business as a separate legal entity with your state. Incorporate or set up an LLC or S-Corp (discuss what’s best for your situation with a tax advisor). Apply for an Employee Identification Number (EIN) through the IRS website.

2. Open a business bank account

Separate your personal and business financials. Use this account to take care of all business expenses (including paying yourself by depositing into a personal account). Most lenders will want to see your business account bank data when you apply for financing.

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3. Get a business phone number

Have a separate phone number for your business. Make sure the number is listed.

4. Check if you have a D-U-N-S number

Check if your business is listed with Dun & Bradstreet. They are one of the main credit bureaus, and their PAYDEX score is used in most trade credit applications. If D&B doesn’t have a file for you, register for a D-U-N-S number for free.

5. Look up Experian and Equifax credit files

Besides Dun & Bradstreet, Experian and Equifax are the other two major business credit bureaus. Lenders tend to use Experian and Equifax data when making decisions. You can’t manually register with Experian and Equifax to build your profile. They do it automatically by pulling information from public records and the information sent in by your business creditors and lenders, similar to personal credit profiles.

6. Get a line of credit with vendors or suppliers

Establish relationships with companies you do business with every day, like Home Depot, Staples, Office Depot, UPS, FedEx, etc. Ask them to extend you a small amount of credit; most will, as they want to keep you as a customer. Verify that they send your payment history to the business credit bureaus. Ideally, establish four or five of these accounts to fill in your business credit profile.

7. Open a business credit card

Stop using a personal credit card to pay for business expenses. Open a couple of business credit cards that are not tied to you personally. Verify they report to the business bureaus when applying. Most business cards offer travel points or cash back programs—money you can reinvest into your business.

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8. Pay your bills on time—or early!

Unlike personal credit, where you have 30 days to make a payment before it affects your credit, your business credit scores can take a hit even if you’re one day late. The only way to get a perfect “100” D&B PAYDEX score is by paying your bills before payment is due.

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