Opening a Business Credit File: A Step-by-Step Guide

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Establishing and nurturing a small business credit profile is a crucial step toward building healthy business credit. Just like individuals have credit reports and scores, businesses have credit profiles and scores that lenders, suppliers and partners use to assess their creditworthiness. A strong credit profile can unlock opportunities for funding, favorable terms and credibility for a business.

In this guide, we’ll explore the essential steps to create a robust small business credit profile.

How to Create a Small Business Credit Profile

1. Make sure your business is a separate legal entity and open a business bank account.

The first step toward building a small business credit profile is to ensure that your business is legally distinct from your personal finances. Registering your business as a separate legal entity, such as a Limited Liability Company (LLC) or corporation, not only protects your personal assets but also establishes credibility in the eyes of lenders and suppliers. Opening a dedicated business bank account further reinforces this separation, facilitating streamlined financial management and laying the groundwork for building business credit.

2. Apply for an Employer Identification Number (EIN).

Think of an Employer Identification Number (EIN) as the backbone of your business’s financial identity. This unique nine-digit number, issued by the Internal Revenue Service (IRS), serves as the business equivalent of a Social Security number. It is essential for tax filing, hiring employees, opening business bank accounts, and applying for licenses and permits. Obtaining an EIN is a straightforward process that can be completed online through the IRS website, and it is a prerequisite for establishing business credit.

3. Get a DUNS number.

A Data Universal Numbering System (DUNS) number, assigned by Dun & Bradstreet, is another critical component of your business credit profile. This nine-digit identifier provides a comprehensive view of your business’s credit history and financial stability. Many lenders, suppliers, and potential partners rely on DUNS numbers to assess creditworthiness and make informed decisions. While obtaining a DUNS number is not mandatory, it is often recommended, as it enhances your business’s visibility and credibility in the marketplace.

4. Start using business credit.

With the foundational elements in place, it’s time to actively build your small business credit profile. This may involve leveraging various credit instruments tailored to meet the needs of small businesses:

Small business loans. Securing a small business loan can provide the necessary capital for growth initiatives, such as expanding operations, purchasing inventory or investing in equipment. When applying for loans, consider factors such as interest rates, repayment terms and collateral requirements. Timely repayment of loans demonstrates your business’s creditworthiness and establishes a positive credit history if your lender reports on-time payments.

Small business lines of credit. A revolving line of credit offers flexibility and convenience for managing day-to-day expenses and addressing short-term cash flow fluctuations. Unlike traditional business term loans, a line of credit allows you to borrow funds as needed, up to a predetermined credit limit. By responsibly utilizing and repaying your line of credit, you demonstrate financial discipline and reliability to potential creditors.

Small business credit cards. Business credit cards are invaluable tools for managing expenses, tracking purchases, and earning rewards or cashback incentives. When choosing a business credit card, consider factors such as annual fees, rewards programs, introductory offers and the APR (annual percentage rate). By using your business credit card responsibly and paying off balances in full each month, you can establish a positive payment history and strengthen your credit profile.

5. Monitor your business credit.

Building a small business credit profile is not a one-time endeavor, but an ongoing commitment to financial stewardship. Checking your credit report enables you to spot inaccuracies, detect fraudulent activity, and address any negative factors that may impact your creditworthiness. You can request a copy of your business credit report from major credit bureaus such as Dun & Bradstreet, Experian, and Equifax. By staying vigilant and proactive, you can safeguard the integrity of your business credit profile and position your business for continued success.

How Long Does it Take to Build Business Credit?

Building a strong business credit profile is a journey that requires patience, persistence and prudent financial management. While there is no fixed timeline for establishing business credit, several factors influence how long it takes to build business credit:

Payment history. Timely payment of bills and obligations is a cornerstone of good credit management. Consistently meeting payment deadlines demonstrates reliability and trustworthiness to creditors.

Credit utilization. Responsible utilization of available credit is key to maintaining a healthy credit profile. Aim to keep your credit utilization ratio (the proportion of available credit you’re using) below 30% to avoid appearing overextended.

Credit diversity. Having a mix of credit accounts, such as loans, lines of credit and credit cards, can bolster your creditworthiness. Demonstrating proficiency in managing different types of credit reflects positively on your business’s financial acumen.

Length of credit history. Building a lengthy and positive credit history takes time. The longer your business maintains accounts in good standing, the stronger its credit profile becomes. Be patient and consistent in your credit-building efforts, and over time, you’ll reap the rewards of a solid credit foundation.

Why Is Building Business Credit Important?

The importance of building a strong business credit profile cannot be overstated, as it allows for numerous benefits and advantages:

Access to financing. A robust credit profile opens doors to a wide array of financing options, including loans, lines of credit and business credit cards. Access to capital enables businesses to seize growth opportunities, invest in innovation and navigate economic challenges.

Favorable terms and rates. A positive credit history enhances your negotiating power when seeking financing or entering into contractual agreements. Lenders and suppliers are more likely to extend favorable terms, such as lower interest rates, higher credit limits and longer repayment periods, to businesses with strong credit profiles.

Credibility and trust. A solid credit profile instills confidence and trust in stakeholders, including lenders, suppliers, customers and investors. It signals that your business is financially stable, reliable and committed to fulfilling its obligations.

Risk management. Separating personal and business finances can mitigate risk and protect personal assets from business liabilities. By establishing a distinct credit profile for your business, you can shield yourself from potential financial setbacks and legal liabilities.

Strategic growth. Building business credit lays the groundwork for strategic growth and expansion initiatives. Whether you’re launching a new product line, entering new markets or acquiring competitors, a strong credit profile provides the financial foundation for executing your business strategy.

The Bottom Line

Creating a small business credit profile is a strategic imperative for entrepreneurs and business owners alike. By following the steps outlined in this guide and adopting sound credit management practices, you can position your business for sustained growth, resilience and success in today’s competitive business landscape.

Remember, building business credit is not a sprint but a marathon, requiring diligence, discipline, and dedication. Stay focused on your financial goals, monitor your progress regularly, and proactively manage your credit profile to unlock the full potential of your business.

Top Tips for Business Owners Just Beginning to Build Business Credit

For businesses looking to build business credit, the journey typically starts by smartly using business credit cards for things like buying equipment, software subscriptions, or doing marketing. This helps keep track of spending while setting up a credit history.

As the business progresses, it’s a good idea to check out trade credit options with suppliers or service providers. Getting payment terms like net-30 or net-60 for stuff you buy helps with managing cash flow while building credit.

Before a business decides to go for business loans, it’s crucial to ensure it’s funding-ready. This means checking that its financials are solid, it doesn’t have too much existing debt, and it has key performance indicators (KPIs) like the quick ratio to demonstrate to lenders that it can comfortably cover debt repayments.

The quick ratio, also known as the acid-test ratio, is a financial metric used to evaluate a company’s short-term liquidity. It measures a company’s ability to meet its short-term obligations with its most liquid assets. A quick ratio of 1 or higher indicates that a company has enough liquid assets to cover its short-term liabilities without having to rely on the sale of inventory. This metric provides lenders with insight into a company’s ability to quickly access funds to repay debt obligations.

Through all this, responsible credit management is about good financial habits and keeping an eye on cash flow. Knowing when bills are due and staying on top of the money you are owed makes building credit feel less like a hassle. Making payments on time, using credit wisely, and checking credit reports regularly are key. By following this roadmap from credit cards to trade credit to business loans, businesses of all kinds can set up a strong credit profile for future growth and financial stability.

Jay Maniar

Pvtol Mindset


DISCLAIMER: This content is for informational purposes only. OnDeck and its affiliates do not provide financial, tax, investment or legal advice.

Article Contributors

Jay Maniar, Pvtol Mindset

Jay is a seasoned expert in finance and operations, with a passion for helping small businesses thrive. With over two decades of experience across various industries and company sizes, including a prominent role as Director of Operations for KPMG in the Middle East, Jay brings a wealth of knowledge to the table.