4 steps to building small business credit

3 min read
4 steps

Open doors to funding opportunities by building business credit: follow these four steps to get started now.

Business credit tells a story about how trustworthy your business is to lenders and protects your personal assets. It can also help you establish and grow your business.

Business credit is different from personal credit because it is connected to your federal tax identification number. This is often referred to as your Employer Identification Number (EIN) and is NOT your Social Security number. This creates a clear distinction between what is personal and what is business-related.

Similar to building personal credit, it takes work to build business credit but the financial advantages are worth it. Here are three major benefits of building strong business credit:

Protects Personal Credit – As a business owner you may be able to limit, if not eliminate, the use of personal credit checks once your business has established its own business credit. This will keep you from having to co-mingle personal credit, personal debts, and personal assets with your business.

Expands Credit Capacity – Businesses have 10 to 100 times greater credit capacity compared to personal credit. As a creditworthy business, your company will be in a position to qualify for financing based on factors strictly related to the business. Without building business credit you will have to continue to rely on your personal credit, which could put you at risk if your business ever runs into financial trouble.

Increases Company Value – A creditworthy business has a powerful advantage in financing ability. Because this asset is fully transferable with the business, it makes your business very attractive for a potential buyer or investor.

Building strong business credit is good for business. Whether you’re just starting to establish your business, or you’ve been operating for a while, here are four steps to help you start building your business credit now:

1) Consider Forming a Limited Liability Corporation (LLC)

If your business is a sole proprietorship, it may be harder to keep your business and personal finances separate. Building business credit is one reason why forming an LLC or corporation could be the right structure for your business. A Limited Liability Corporation (LLC) combines the limited liability of corporations with certain tax benefits.

2) Separate Business and Personal Funds

It’s a best practice to operate your business as a separate financial entity. Opening a business bank account and keeping personal and business funds separate not only provides an opportunity to build business credit, but it can also simplify tax preparation.

3) Report Your Payments to the Business Credit Bureaus

Making on time payments and managing your business credit obligations responsibly can help you build your business credit history and improve your overall business credit score—but only if reported to the business credit bureaus. Not all companies report payments to the business credit bureaus so it’s important to work with lenders like QuickBooks Capital, who reports to Dun & Bradstreet and Experian.

4) Check Your Business Credit Report Regularly

Once a quarter, check your business credit report and your business credit rating with each of the three credit bureaus. If you spot any errors or inaccuracies, take steps to correct them. You’ll also be able to see if your credit scores are declining for legitimate reasons, such as late payments or overused credit, and take steps to change that behavior. If you’re a QuickBooks Capital customer, you may already have complimentary access to a free business credit score provided to our customers by Dun & Bradstreet.

Building a strong business credit rating can provide great benefits for your business and offers unique financial advantages in the marketplace. With this asset, your business can secure lines of credit, lease equipment, finance a company vehicle, and obtain business loans and credit cards without putting your personal credit at risk.

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