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How Entrepreneurs and Small Business Owners Can Build Business Credit

Updated: 3 days ago

If you care about your brand and business reputation, then your business credit is apart of that. So, in this article, I will briefly walk through what a lot of small business owners and entrepreneurs learned the hard way, so you do not have to.

Photo by RODNAE Productions from Pexels

The Benefits of having good business credit

Having good business credit can provide a number of benefits to a small business, including

  • Positioning your company for more favorable payment terms with new vendors and suppliers

  • Reducing the number of times you’ll need to prepay for products or services purchased

  • Allowing you to obtain better interest rates and credit terms from lenders and banks

Once you have established good business credit, be sure to monitor and protect it, just as you do with your personal credit.

Why separate credit histories?

LLCs and corporations can provide a shield between your business and your personal credit. Negative events might not affect your business as much, if at all. For example, if you have some financial mistakes that impact your personal credit history and score, they shouldn’t directly impact your small business credit if you have established a clear separation. Vice versa is also true.

Why separate a business from the owner?

If you are like most Freelancers (Influencers, contractors, consultants, etc) and operating your small business as a sole proprietorship or general partnership, you are the business/business owner in one entity, but if you want to run a BUSINESS you need to demonstrate that the business is separate from the owner(s). Think the famous Jay-Z line, “I’m not a businessman, I’m a business, man”, Jay-Z is an incorporated business entity, Shawn ‘Jay-Z’ Carter is a person. One of the main reasons to form a corporation or LLC is to protect personal assets from eventuality. Make sure that you maintain proper separation between your personal and professional life in order to keep ownership protected.

Eight simple steps to establishing your business credit

1. Incorporate your business

Even though this may be incorporated when you're reading this, it deserves a mention. In sole proprietorships and partnerships, the business is no different from its owners. That means that there can't be any separation of business credit history from personal credit history. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).

2. Obtain an EIN

An EIN (federal tax identification number) is basically a social security number for a business. It is required on federal tax filings and is also required to open a business bank account in the name of the corporation or LLC. In order to comply with IRS requirements, many larger businesses also require an EIN from their vendors in order to pay them for services provided.

3. Open a business bank account

Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card (see below) for many financial transactions, be sure to pay the credit card bill from your business checking account.

Initially I opened a business checking and saving accounts per some sound advice from my first personal business banker, in the long run this helped to quickly establish business credit and helped to create a financial history.

  • One business checking account for all recurring monthly expenses and accept payments

  • One business savings account to build a business “piggy bank” to illustrate our financial fitness

This also worked to establish a relationship with an international bank. Further building a level of credibility with foreign businesses and perspective clients from larger corporations.

4. Establish a business phone number

Whether you use a landline, cell phone, or you use VoIP, have a separate number for your business and in your business’ legal name. List that number in the directory so it can be found.

5. Open a business credit file

Open a business credit file with all three business reporting agencies: Experian, Equifax, and TransUnion.

  • Step 1 - Sign up for your free D-U-N-S number from Duns & Bradstreet

  • Step 2 - Sign up at Nav to track and review all of your credit reports in one secure place and resource.

  • Step 3 - Open a secured business credit card account with Brex

  • Step 4 - Set-up automatic deposits from your checking account to your Brex account

  • Step 5 - Create your Stripe account - Best if you are an affiliate marketer because most affiliate platforms pay through Stripe and this will be the fastest way to get paid from your affiliate accounts.

  • Step 6 - Create your PayPal account - Best and most trusted digital payment platform, period! If you have a team of contractors or a freelancer and use Fiverr or Upwork, this is a must. PayPal charges a nice penny, but if you have a problem they will actually talk to you, get your money back, and so much more.

  • Step 7 - Create a QuickBooks account - Best if you are not good at keeping track of all your finances in an orderly fashion and can’t afford an accountant. Also, easy to file taxes and draft financial documents.

  • Step 8 - Connect your bank accounts, Brex, Stripe, and either PayPal or Payoneer accounts to QuickBooks. Just do it.

  • Step 9 - Sign up for Mint - This is a free platform to track and manage your personal and business finances. Its by Intuit, yup the company that made QuickBooks and this tool is great.

6. Establish a line of credit with vendors or suppliers

Work with multiple vendors/or suppliers to create credit for your company to use when purchasing with them. Most automatically will report to at least one of the 3 major business credit bureaus, but ask them to report your payment history to all credit reporting agencies when you speak to a representative because some will if they are contacted and requested to do so by you.

To quickly and start credit history hassle free, start with at least one of these Net-30 account vendors. After a few months of purchasing and paying off the monthly balances, you should pursue 1 Net-60 account [FACTS]. Here are the essential Net-30 accounts:

  • Unline

  • Grainger

  • Business Tshirt Club

  • Quill

  • Summa Office Supplies

7. Pay your bills on time through your business payment accounts

Just like with your personal credit, late payments will negatively impact your business credit. Perhaps it should go unsaid, but be sure to pay your bills on time, all your Net-30 accounts should be paid before you reach 30-days. Do this for 6 to 9 months and you would have established a solid, short-term payment history. Here are the best methods to make payments:

  • Pay all of your Net-30 accounts with your Brex card and use your Nav account to confirm all credit bureaus are updated with your timely payments. Nav even has credit reporting request letters! You do not need to pay for credit repair services, all of these letters and tips are FREE on Nav!

  • Set-up auto pay for all other expenses where possible from your checking account. Bills such as rent and memberships that are not cannot be easily integrated with Brex. But these are businesses that could report your activity to the credit bureaus and you have receipts of payments and good payment history.

8. Now obtain business credit card(s)

Now you should obtain for at least one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.

Wait until this point because at this point you will have a secure credit card with fantastic purchase history, Ramp or PayPal for instance In addition, your payment history with Net-30 and maybe even a Net-60 account will be firmly established. This way now you will have two things in your favor:

  • Great payment history with credit lenders (technically vendors are the same as credit card companies in this situation)

  • All credit bureaus will have a history of you making payments

This is when you either accept an invitation to apply for an unsecured business credit card or your find the best credit card that fits your needs.

Here are some quick suggestions on how to select the best card for your business needs and tips to help you get approved.

Select a card that gives you the most benefits for your type of business:

  • If you own AirBnB properties or travel a lot, then you want a card with travel benefits

  • If you own a trucking business or a resale business (purchasing products at wholesale and reselling at retail prices); then you want a card that gives points or cash back for purchasing gas, on merchandise, or supplies.

Select a card with an organization you have a relationship with:

  • For instance, the bank you have checking and/or savings account. They are more inclined to approve your application and offer a pretty good APR due to the fact you have an established and healthy account history.

The key here is that you do not want to rush the process, but you do want to start this process as soon as possible. Patience and playing the long game is essential in this process.

Do not cut corners or look for a loophole, this process is actually rather simple and easy to use in your favor if you take your time and get a solid start.

Most of this stuff I knew before starting my first business, but I had to learn some steps the hard way. So simply put, don’t learn the hard way when you do not have too. A hard head makes for a soft…well you know the rest.


Tune In To The Ambition Show

Accomplishing goals can be challenging, and it is especially more challenging today because every industry is super competitive more than ever. At this time, irrespective of the field you specialize in, aspiring entrepreneurs and small business owners need all the help they can get.

The Ambition Show podcast shares advice and tips from experience to help guide aspiring professionals and entrepreneurs reach their goals..

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