Just the way your business didn’t suddenly appear, fully-formed, neither will your business credit. Here’s how to build yours the right way — with a little help from Alliant Business Systems.
Take Care of Your Legal and Accounting
Simply putting up a Facebook page and a quick website is about all it takes to let the world know you’re in business. However, potential lenders have higher standards than that. They’ll be looking for the following:
- Legal structure with appropriate articles of incorporation
- A DBA, where applicable
- Appropriate federal, state, and local documentation, including permits and licenses where applicable
- An IRS-issued EIN (Employer Identification Number)
- A DUNS number through business credit agency Dun & Bradstreet
- A registered agent
- A business plan
- We’ll cover a few other things your lender will expect in the next section.
Separate Personal and Business Credit
Three other things will help to establish your business as a business. First, you’ll want a business checking account, which you may eventually augment with a business savings account. You should also have a dedicated business phone line and dedicated business address (even if the latter is a post office box or a box rented from a company like UPS or FedEx). We’ve written elsewhere about the importance of separating personal and business credit, and so won’t belabor the point here — though we suggest you familiarize yourself with the reasons for, and mechanics of, doing so.
Don’t Neglect Your Personal Credit
If your business is still in its early stages, it will still be common for your personal credit to be considered when you’re applying for business credit. That’s even the case when you’ve done your due diligence in setting up a wall between your business and personal accounts. That doesn’t mean you’ve wasted your time; the two will diverge eventually. However, it’s in your best interest to pay attention to your personal credit utilization and credit score in the meantime.
It’s notoriously difficult for new businesses to qualify for bank loans, SBA loans, working capital, and various other types of business financing. Most lenders require a minimum of two years in business (many require more than that), and will require excellent business credit. However, there are interim steps you can take to build credit and prepare yourself to diversify your sources.
Start by arranging trade credit with suppliers, making sure that they report to the business credit bureaus — Dun and Bradstreet, Experian Business, and Equifax Business. If they do not, request that they do so. Open a business credit card for day-to-day expenditures, and don’t carry a balance (a high debt utilization ratio can hurt your credit score even if your payment history is perfect). Take a small loan, even if you don’t need it. You can even use the loan to pay back the loan if you’d like; remember, the point here is to build a solid payment history that shows you’re creditworthy.
One more reminder, since it’s something we see too many businesses neglect. You must monitor your business credit and personal credit diligently. Items that are missing, incorrect, or fraudulent will hurt you.
Remember the Long Game
Just as you dreamt for years about opening a business before you finally took the leap, you should remember that business credit is not built overnight. Nor, for that matter, does it need to be built alone. Alliant Business Systems can help you build or repair business credit. Contact us for a free business credit consultation today.