Now is the time for you to build business credit. Begin by establishing your company’s credit history, one that is separate from your personal credit profile. In this article, we will discuss four structural components that are necessary when building your business credit.

Having the right kind of business credit for your company is crucial when dealing with growth & expansion, change, uncertainty, or disruption. Like constructing a home, building business credit:

Must follow a defined process to ensure it is done right
Begins well before your business is operational (or before the dirt starts flying)
Cannot be completed overnight

BLUEPRINT

Establish Your Business Identity

The blueprint represents a vision and a plan of action. Before you can construct a home, you must first describe the type of house you want and visualize how the completed home will look. Before you can build business credit, you must establish a professional and consistent business identity. Your business must prove its existence in the legal, regulatory, financial, physical, and virtual realms. For example, you must file the appropriate legal documents required under local, state, and federal laws establishing your entity as an operation separate from you personally. Only after your business blueprint has been completed can you begin to lay the foundation for business credit.

For more information on creating your business blueprint, check out 5 Steps to Establish Your Business in Texas.

It is essential that you form a legal entity and secure an Employer Identification Number (EIN) from the Internal Revenue Service.

FOUNDATION

Build Profiles with the Business Credit Bureaus

Every good home needs a strong foundation. The “Big 3” business credit bureaus represent the foundation on which organizations build their business credit. Using your blueprint, you can now begin to construct your credit profiles at Dun & Bradstreet (D&B), Experian, Equifax. The credit bureaus will eventually develop a file on most businesses, but active management can guide and accelerate the process.

D&B is your first stop to build business credit

You must either create or claim your business profile on dandb.com. D&B and Equifax will not generate a credit score for your business until after you’ve established several active trade lines. Businesses build their credit reputations by establishing good trade lines.

D&B’s Paydex score is the most used business credit score. Make sure to provide your D-U-N-S number on all credit applications, regardless of whether they ask for it.

STRUCTURE

Frame your business credit by establishing trade credit with vendors

Establish Credit Relationships With Vendors That Report

The Framing and Walls Form a Home’s Structure. The structure of a house leverages elements built in the foundation to create functional systems (water, sewer, electrical, data, etc.). You must frame your business credit by establishing credit with vendors that report to the business credit bureaus. Types of business credit include:

Payment terms
Service agreements
Revolving credit
Business charge card or credit card

Credit exchanged from one business to another is a type of commercial credit known as trade or business credit. Trade credit is the largest source of business financing in the U.S.

Get on payment terms with your vendors and suppliers

Becoming an excellent paying customer is the first step to obtaining vendor credit. After developing relationships with your vendors and suppliers, you may request payment terms from them. These agreements typically grant you 15 or 30 days to pay for the goods and services you purchase.

Company phone lines, internet service, web hosting, and utilities are examples of business service agreements paid on credit.

Apply for revolving credit

After developing some history with a few active trade lines, you can apply for a revolving credit account. Many retailers offer store credit accounts for business customers. Each relationship you establish can serve as a trade reference for future applications.

Apply for a business charge card or credit card

After your business credit score is established with at least six months of history, then you should consider applying for a business credit card. If you have a solid business relationship with your bank, a bank credit card might be the logical first place to start.

Initially, however, you may find that a charge card is easier to obtain with no personal guarantee:

Divvy might be a good fit if you’ve developed a strong D&B file, or
If your business regularly maintains high bank balances, the BREX 30 could be a good option

The following business credit cards require a personal guarantee, but they don’t report to the personal credit bureaus:

Use your credit responsibly and request credit line increases as needed, and creditors will allow.

Of the 500,000 companies offering trade credit, only 2-3% voluntarily report to the business credit bureaus. If your trade creditors do not report, you can ask them to start reporting, or at least for a trade reference.

ROOF

Protect Your Business Credit From External Threats

The Roof Protects Your House from External Elements. Your business credit scores represent your organization’s financial roof. The stronger they are, the better protected your organization is from financial threats. Now that you have worked hard to establish good business credit, it is crucial to protect it through active monitoring. Of the many factors that influence your scores, payment history is the most crucial, and making payments before they come due can help boost your business credit score.

Here are a couple of services that will help you monitor your business credit with the Big 3 bureaus:

Nav.com offers free and paid plans with a host of other perks starting at $29.95/mo
CreditSuite offers basic monitoring for $24.00/mo

Unlike personal credit, business credit is unregulated and voluntary, so errors occur more frequently.

Summary

To recap, here are the four structural components you need to build business credit:

Blueprint – Establish a professional and consistent business identity
Foundation – Build your business profiles at the Big 3 Business Credit Bureaus
Structure – Establish credit with vendors that report to business credit bureaus
Roof – Protect your business credit through active monitoring

If you use this structured approach in building business credit, your company will be better prepared for the future; Regardless of whether it holds major growth opportunities under sunny skies or heavy weather in turbulent times.

Sources

Whether this is a problem you are currently facing or just something that has been weighing on your mind, feel free to contact me via phone or email so we can discuss your situation, goals, and solutions.

I built my first career in management consulting and have spent the last 20+ years using my passion and skills in community and economic development. For the past nine years, I have advised hundreds of start-ups and small businesses.

4 Structural Components to Build Business Credit

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