Why Every Business Owner Needs to Learn About Business Credit

No ones likes unexpected surprises, at least not the ones that tend to spoil your plans and make you try to find solutions that can be both long and expensive. You know what kind of surprises I’m talking about, right?

You know, like when the “Blue Screen of Death” appears on your computer screen and a system crash occurs. That just means having to contact an IT expert and wait for them to fix whatever is wrong.

Now imagine how awful those kinds of surprises can be when they involve your business’ future. Business owners end up feeling shocked when they find out a lender rejected their application because they don’t have a business credit history.

Their first thought is usually: “Who knew you needed more than just personal credit history?”

When business owners are denied funding because they haven’t established business credit, they aren’t quite sure what to do next. They need a business loan but they can’t provide sufficient information so lenders approve their applications.

Learning how to build business credit sounds complicated, but actually, it’s not. Here’s how to do it.

How to Build Business Credit in Seven Easy Steps

  1. Create a legal entity – By establishing your business as an LLC or corporation, you separate business earnings from personal income.
  2. Apply for a employer identification number (EIN) – You’ll use this number for business transactions instead of using a social security number.
  3. Open a business account – Every time you make a purchase or deposit, you create a paper trail for business expenses and income to establish a history with credit bureaus. As you develop credit, you can apply for a line of credit with the bank to withdraw and repay the money.
  4. Apply for a business credit card – When you make timely payments, you increase your credit score with credit reporting agencies (Experian, Equifax, and TransUnion). You can also manage your cash flow easier by keeping track of expenses.
  5. Create a separate phone number and address – A phone number registered in your business name identifies that it’s a separate entity. By having both a business phone number and address, you can register with directories like the Better Business Bureau and Yellow Pages.
  6. Open a line of credit with suppliers – By gaining credit from vendors and supplies, you establish that your business is creditworthy as long as you pay off the balance. Pay them off early to improve your business FICO score.
  7. Pay bills on time – Late payments negatively affect your business’s credit history.

Read More – How to Get Back Your Life When Your Business Fails In 2019

These Business Owners Learned How to Build Business Credit

Hard work + Good business credit = Growth

Unfortunately, a website designer learned the hard way the importance of having both business and personal credit.

His business was growing so fast that he needed to hire additional staff to keep up with the workload. And as wonderful as that sounds, he was discouraged when a bank turned him down for a loan.

His personal credit history was excellent, but he had been so busy designing websites that he didn’t even know that business credit was important to lenders. He met with both his accountant and attorney who helped him set up an LLC and apply for an EIN.

He also opened a business account which allowed him to get a business credit card. Within four to six months, he revisited the lender.

This time he was able to get the loan he wanted simply because he built business credit by following some of the tips outlined above. Within months, he and his employees picked up additional clients and were also developing apps for some of their clientele.

Don’t let business credit deviate you from your path to success

A blogger has been working so hard to establish an online presence by writing blogs regularly and developing relationships with email subscribers.

She wants to take her business to the next level, and a small business loan would help market her work and increase traffic to the website. She wanted to hire a marketing agency and a part-time social media expert, but needed capital she didn’t have.

She was shocked when the lender rejected her application.

The blogger didn’t know the first thing about how to build business credit. She had a favorable personal credit history but her business credit was nonexistent. The financial specialist explained that by establishing business credit she should qualify for better interest rates and credit terms.

The lender knew she already paid creditors on time but she needed to make purchases using her business name to get financing. She decided to complete all seven steps mentioned above.

When she applied for a loan the next time, the application went through without any problems. She learned a valuable lesson about the importance of building business credit.

Build Business Credit for a Brighter Future

As a business owner, you usually don’t know when an opportunity that requires funding may arise.

By learning how to build business credit, you position your business to take advantage of investing in one-time possibilities. An excellent business credit rating indicates you’re a trustworthy borrower.

It doesn’t take long nor is it hard to create a business credit history. The secret is in knowing how, which you just learned. Now, you can take steps to avoid being rejected by a lender without wondering what went wrong.



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