How to Build Business Credit Fast for New Small Businesses

February 21, 2023

How to Build Business Credit Fast for New Small Businesses
Business resources

As a small business owner, you understand the importance of establishing a solid market reputation. A vital component of this is a high business credit score. But what exactly is a business credit, and why is it relevant for new small businesses?

Business credit is a record of how you’ve managed your company's financial obligations, such as paying bills and obtaining loans. A strong business credit score increases your chances of being approved for loans and lines of credit and helps you secure better terms and lower interest rates, benefiting your small business and helping you grow.

It can also help you establish a solid financial reputation, making it easier to attract new customers and partners. And having a strong business credit score can provide peace of mind, knowing that you have the financial stability to weather any unexpected challenges that may arise. And with Idea Financial's funding solutions and expert guidance, building your business credit has never been easier. So, let's get started!

How can you improve and maintain your business credit score? Here are eight steps to get started:

1. Register your business with the three major credit bureaus

Registering your business with the three major credit bureaus (Experian, Equifax, and TransUnion) can improve your business's credit score, increase the visibility of your financial information, aid in better risk management, and provide access to credit facilities and financial products. This can positively impact your business's financial standing and help you manage risk and access credit, making it easier for potential lenders and investors to assess your business's creditworthiness.

2. Obtain a tax ID number (EIN) for your business

A tax ID number, also known as an Employer Identification Number (EIN), is crucial for proper tax reporting and compliance and for establishing your business as a separate legal entity. This will make it easier to open bank accounts, apply for business licenses and permits, and hire employees.

3. Open a business bank account

This is a necessary step in separating your personal and business finances, which is vital for building business credit. By having a separate account, you can clearly distinguish your personal transactions from your business transactions, and create a transparent financial record. This can help you better manage your business finances and make it easier to track expenses and revenues and apply for loans and other forms of credit. Additionally, it can help protect your assets and credit if your business experiences financial difficulties.

4. Get a business credit card

Having a business credit card can be beneficial for managing and tracking business expenses and establishing a positive payment history. This can help improve your business's credit score, making it easier to access credit and loans in the future. Additionally, using a business credit card can provide valuable insights into your spending patterns and help you manage your cash flow more effectively.

5. Apply for a small business loan or line of credit

This can be an effective way to access the funds you need to grow your business. Repaying the loan or line of credit on time can demonstrate your business's ability to manage its finances responsibly, which in turn will help improve your business credit score. It can also provide a stable source of funding for your business by helping you manage cash flow and pursue new opportunities.

6. Monitor your business credit report regularly

This step is essential to stay on top of your business's financial health and ensure its creditworthiness. By obtaining a piece of free information once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion), you can stay informed about your business's credit history and any changes to it. This can help you identify and correct errors, monitor fraudulent activity, and remain aware of how your financial activity impacts your business's credit score. It’s also recommended to utilize a credit monitoring service to obtain more frequent reports and stay up to date on your business’s credit health.

7. Avoid using personal guarantees for business loans

This will help you establish clear boundaries between personal and business credit, which is important to build strong business credit. When personal guarantees are used for business loans, it can blur the lines between personal and business credit, making it difficult to distinguish one from the other. This can negatively impact your credit score and make it harder to establish your business as a separate financial entity. By avoiding personal guarantees and focusing on building business credit, you can ensure that your business has its financial standing and is more likely to be approved for loans and credit in the future.

8. Maintain a positive payment history

This final step is critical for building and maintaining a strong business credit score. Late or missed payments can have a negative impact on your business credit score, so it's essential to pay all bills on time. Doing so demonstrates your business's ability to manage its finances responsibly and establish a positive track record with lenders and suppliers. This can help you access financing and credit more quickly and secure better terms and interest rates. Additionally, a positive payment history can help you establish and maintain good relationships with suppliers and lenders, which is essential for the long-term success of your business.

Following these eight essential steps will help you build your business credit and set your small business up for future success. And working with a reliable funding solution provider like Idea Financial is a key part of building a solid foundation to grow your business and its credit score. Our funding solutions are tailored for growing small businesses that will help set you up for long-term success.

Take the first step towards building a solid business credit score today and securing the funding you need for long-term success—partner with Idea Financial to access the funding solutions and expert guidance you need to succeed. Contact us now to get started!