Business 101: How to establish business credit

June 28, 2021

Business 101: How to establish business credit
Business resources

Ask any entrepreneur or small business owner and they will tell you that cash flow and capital truly are king. Your ability as an owner to obtain and use financing is critical to surviving the first few years in business. Without good cash flow and plenty of capital, cracks in your business can start to appear, leading many startups to fail.

Today we’re going to cover business credit in a little more detail for your benefit. We’ll look at what business credit is exactly, how you can obtain it, and important details surrounding its use and management. Let’s take a look.


So, what is business credit?

Just as a person can have a credit score, so too can a business. Business credit, therefore, is the ability of any company to be accepted for financing by a broker or lender. There are various companies and bureaus that help manage business credit records. They provide a service where scores can be quantified, and documentation maintained.

As a business, your credit rating or report can be reviewed by a wide variety of different companies and institutions as you operate. These can include things like suppliers and service providers all the way through to insurance companies.

Your company’s ability to obtain credit is a decisive factor in how it will manage its early years and take advantage of the opportunity to grow and expand its scope.


How can I build my own business credit?

There are a number of basic steps your company can take to help improve business credit. Just like with a personal credit rating, there are numerous data points from which a credit rating bureau will score your company. Knowing this, you can do several things that will help to legitimize your business in the eyes of anyone appraising its credit rating.

Get listed: One of the first steps your company should take in this regard is to get listed in directories. This includes having a phone number and a bank account for the company that’s listed under the business’s official name. Obtaining an EIN, or Employer Identification Number is also important.

You can then use this account to pay as many bills as is practical. This will help to build up a purchasing and repayment history which may improve your score. It’s also usually mandatory for any business seeking credit to have a business credit file.

Develop relationships: It’s important for your business credit rating to obtain and nurture business relationships with important vendors and suppliers. Having a longstanding relationship will pay off in two ways. First, you will be more able to obtain some form of advance or line of credit with a supplier or vendor.

Second, Over time, having arranged some form of credit with payment terms in place will do wonders for establishing a positive credit history for your company.

Don’t miss payments: Sounds simple, doesn’t it? And yet, each year, businesses across America fail to reliably make repayments. This, unsurprisingly, is bad for the credit rating of your company and for its ability to obtain lines of credit in the future.

Always remember that, in essence, a credit rating of any kind is a set of metrics that are used to deduce how reliable you are at repaying owed money. If you fail to be consistent in this area, your trustworthiness decreases sharply in the eyes of lenders. It’s a basic but critical point to be mindful of. You can avoid this issue by paying bills early, which may help accelerate the improvement of your credit rating.


We hope this information helps!

These are basic considerations in the development of a credit rating for your business, but they are still important, and they’re often overlooked. Always remember that there are many different data points against which your ability to obtain a line of credit is weighed – and that these can be more detailed than you might think.

If you prioritize building and maintaining positive supplier relationships and focus on repaying any obligation earlier than it is required, your company credit is likely to improve significantly. This will also help your ability to manage cash flow and obtain loans or lines of credit. Remember that building credit takes time so it’s best to start early.

The Idea Financial team is always here to help Charge your Business Forward.

Idea Financial