Many small business owners look to acquire financing for their business and most of them get rejected by banks. Even while their personal credit is better than good. The reason why they get rejected is primarily because of their business credit, which many small business owners are not even aware of. An experienced entrepreneur and author, C. Naomi Covington quickly took notice of this fact. With her extensive experience in the business world, Covington has noticed how important and beneficial business credit can be. So, she has compiled all the necessary information regarding business credit and credit score in her latest book, It’sSimply Business Credit: For Aspiring Entrepreneurs, Government Contractors, and Franchise Owners. Covington aims to help small and big business owners to maximize their profits and business value with the help of a good business credit score.
Establishing business credit is the first and most important step to help your business have access to capital that will help it run smoothly and successfully. According to Levi King, here are the necessary steps that you need to take in order to establish business credit:
1. Put your business on the map
If you haven’t done so yet, you’ll need to establish your business as a separate legal entity with your state. That means either incorporating or setting up an LLC or S-Corp (discuss what’s best for your situation with a tax advisor). Next, you’ll want to apply for an Employee Identification Number (EIN) through the IRS website.
2. Open a business bank account
This will help you clearly 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). If you apply for financing, most lenders will want to see your business account bank data to help them make the decision.
3. Get a business phone number
You can use a cell phone, VoIP, or a landline, but you need to have a separate phone number for your business. Make sure the number is listed, so it can be found.
4. Check to see if you have a D-U-N-S number
Once your business is legally established, you should check to see if it’s listed with Dun & Bradstreet. They are one of the main credit bureaus, and its PAYDEX score is used in most trade credit applications. If D&B doesn’t have a file for you, you can 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. Unlike D&B, you can’t manually register with Experian and Equifax to build out your profile. They do it automatically by pulling information from public records and the information sent in by your business creditors and lenders. It’s similar to how your personal credit profile gets populated.
6. Get a line of credit with vendors or suppliers
You may already have some of these relationships established. Think about the companies you do business with every day, like Home Depot, Staples, Office Depot, UPS, FedEx, and so on. Ask them to extend you a small amount of credit; most will, they want to keep you as a customer. Just be sure you verify that they send your payment history to the business credit bureaus. It’s reported voluntarily. Ideally, you’ll establish four or five of these types of accounts to help fill in your business credit profile.
7. Open a business credit card
If you’ve been using a personal credit card to pay for business expenses, now’s the time to stop. You should open a couple of business credit cards that are not tied to you personally. You’ll need to verify they report to the business bureaus when applying. Most business cards will include travel points or cashback programs—money you can use to reinvest into your business.
8. Pay your bills on time—or early!
Unlike personal credit, where you have 30 days to make a payment before it dings your credit, your business credit scores can take a hit even if you’re one day late. In fact, 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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