Published By Faith Stewart at September 14th, 2021
Most business owners assume that you build credit for a business the same way you build consumer credit. Honestly, it makes sense. It’s no wonder this is such a common misconception. With consumer credit, you just get credit accounts, and your payment history, good or bad, is reported to the credit bureaus. It builds passively on its own, whether you want it to or not. However, when it comes to how to build credit for a business, the same is not true.
You have to intentionally work to build a business credit profile with a positive score. How do you do that? First, you have to establish a business credit profile. Then, you have to find accounts that will report your payments. This is how you start to build a business credit score.
How do you establish a business credit profile? Don’t all creditors report payments, or lack thereof? Where do I start? Surprisingly, you start at the beginning.
It goes all the way back to the foundation. Business credit is part of a bigger picture we call fundability. You cannot build credit for your business if your business is not fundable, and fundability starts with a fundable foundation.
The steps you take to build a business credit profile are the same ones necessary to lay a fundable foundation for your business. If you are missing any of these steps your business will not be fundable and you will not be able to build credit for your business. Some of the things that make a difference will probably surprise you.
Something as little as your business address, phone number, or email address can cause problems with fundability. That, in turn, affects your ability to build credit for your business. Your address has to be a physical address where you can receive mail. For example, don’t use a P.O. Box or an UPS Box.
Your phone number should be toll-free and listed in the 411 directories. You can have it forwarded to your personal phone, but you need a separate business phone number. Also, a business email address is necessary. But, you need to be sure it has the same URL as your business website. Do not use a free option like Yahoo or Gmail.
Here is a quick bonus tip. Your website needs to look professional and work well, and you need to pay for hosting. If a lender looks at your website, you want to make a good impression.
Dun & Bradstreet is the largest and most commonly used business credit agency. Yet, you cannot have a business credit profile with them without a D-U-N-S number. You will not get one automatically. You have to apply for one on the Dun & Bradstreet website. Since lenders use it often, it is important to have a profile with them. It’s free, but be careful. They will try to sell you a lot of things you do not need, including their business credit monitoring services. You can do that cheaper elsewhere. Just apply for the number.
One of the major differences between consumer credit and business credit is that not all business credit accounts report payment history. Of course, pretty much all consumer credit accounts report payment history. You do not have to do anything to make that happen, it just does.
But this is not how business credit accounts work. Even if you do all the work to set your business up to be fundable, and establish your business credit profile, you may still not have a business credit score. Unfortunately, that’s because the accounts you have may not be reporting your on-time payments.
The solution may seem simple. Just find accounts that will report. However, it’s not easy to find accounts that will approve you before your business credit score is established, let alone those that will do so and report payments. When you are trying to establish a business credit score, you have to find the few vendors that will both extend credit to your business without a credit check and report payments. There aren’t many, so you have to take what you can get.
Business owners pretty much have two ways to go about finding these accounts. Of course, you can just apply for credit accounts and hope you get approved. Then, hope they are reporting payments. You can monitor your business credit to see if payments are being reported. If they are, that’s great. If not, you have to start over.
Complicating matters even further is that you need 5 or more accounts reporting initially. This is a minimum to build a score strong enough for approval from other accounts. As you can imagine, this trial and error method can take an extremely long time.
The other option is to enlist the help of a business credit specialist. This is someone who can help you find those accounts that will both approve you without a credit check, and report on-time payments to the business credit reporting agencies. These are typically net accounts, not revolving. That means they have to be paid in full completely at the end of the net term, usually 30, 60, or 90 days.
You cannot just start applying for any and all accounts at random trying to get credit for your business. Well, technically you can, but if you do not have a strong business credit score, you will be denied.
The first accounts are those initial accounts that will approve a business without a credit score and report payments to the business credit reporting agencies. Still, even after you have your initial business credit score, you will not yet be eligible for any and all business credit accounts. In contrast, you’ll have to find those that will approve you based on your still limited credit history. Furthermore, those new accounts need to report payments as well so that you can continue to build your business credit score.
This puts you in the same predicament described above. You can either apply at random, using trial and error until you get enough accounts reporting to apply for those with higher limits and lower interest rates, or you can save yourself considerable time and frustration by working with a business credit specialist. A free consultation with a business credit specialist is one of the best ways to see what they can do for your business.
You can build credit in your business name. However, you have to take the initiative to work through the process. It will not happen on its own. Don’t wait either. Start now. Even if your personal credit is fabulous and you have no trouble funding your business based on it, you need to know how to build credit for your business so that you can keep your strong consumer credit score. Then, you can get the funding you need to run your business, when you need it.