building business credit

Business credit is an essential element for entrepreneurs and business owners alike. With business credit, you can maintain a completely distinguished credit history separate from your personal credit and take advantage of various business benefits. 

Every business starts with the target to make it into the big leagues. And solid business credit can assist you in developing your business. After all, without strong business credit, investors are not likely to be eager to invest in your company.
Building business credit is relatively easy, but before creating one, you should have a clear idea about what business credit actually is. Keep reading to learn all about it!
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What is Business Credit?

Business credit is basically a rating of your business’s financial responsibility, which can allow you to effectively obtain financing, credit at increment the value of your organization. 

Most banks and investors look out for your business credit when setting advance terms, deciding protection expenses, expanding credit extensions, or considering your business as a reasonable partner. Thus, leveraging the power of good business credit, you can have various financial advantages from lenders and suppliers.

Business Credit Scores

Business credit agencies such as

Dun and Bradstreet

Business Experian, 

Business Equifax 

and Nav

use data provided by investors and suppliers associated with your business to make credit reports for your company, the credit generally ranging from 0 to 100. The higher the score your business achieves, the more trust you are likely to gain. Keeping up a score of 80 or higher is a good place to start since it reflects lower business risk for investors. 

Missing payment deadlines, inaccurate credit reporting, or having complaints from creditors and investors can lead to a high debt-to-equity ratio, which is the ratio of a business’s credit in us against its open credit. 

This is what results in a bad business credit score. To keep up solid business credit, the best thing you can do is take care of your finances to create a positive credit history and monitor your balances to ensure that your credit reports present accurate information.

Importance of Business Credit

Loans and investments are crucial for a company in expanding its operations. Before handing out a loan to your business, a lender is likely to check your business credit. In this way, they will decide how trustworthy your company is and set interest rates based on that. So, building strong business credit is extremely important to have better credit terms. 

Partnership or collaboration with other successful businesses is essential to having a successful business yourself. Before partnering with your business, other businesses will check your business credit score to determine the reliability of your business by calculating the estimated risk of engaging in business activities with you. And since the higher the score, the lower the risk, they will only partner with you if you have a considerably high score.   

A high business credit score positions your business for more desirable credit terms with new investors and suppliers. It also provides you the ability to avoid terms that require paying for items purchased for your business in advance. 

Insurance for businesses is also extremely important to avoid major losses due to any unwanted reason. Great business credit can lead to lower insurance charges, lower expenses, and better interest rates. You also get the chance to provide minimum payment deposits when you buy services from other businesses. 

Personal Credit vs Business Credit

Knowing the difference between your personal credit history from your business credit is important. Think about your independent business credit as a divider separating your business choices from your personal records. Instead of being connected to you and your social security number, business credit will be connected to your business identity and its Tax ID number. With this approach, you can ensure the security of your personal assets, especially in the event of liquidation or bankruptcy. 

Who Can View Your Business Credit?

Anyone and everyone can view your business credit. So, any individual, creditor, investor, supplier, or insurance company can review it before partnering with your company or giving a loan or a settlement. As this information is accessible by all, ensuring a good credit standing can be instrumental in gaining reliable partners and customers. 

How to Build Business Credit

Now that you know what business credit is, it is time to know how to build it. There are various ways through which one can establish a business credit profile that ensures better financing and business opportunities.

Let’s have a look at the fundamental tips that can help you create business credit:

  • Register your business

Registration of your business to the federal state government is the first step to creating business credit. Without having your business registered with your secretary of state, you can’t even create a bank account for your business, let alone establish business credit. Registering a business makes it an entity that is legally separate from its owners, thereby having separate accounts.

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  • Obtain an EIN from IRS

The EIN is the identification number of your tax payment, which is basically proof that you are paying tax. You have to provide EIN to start a business bank account for your company, and it is also required for investments and financing. 

  • Create a business bank account

Open a bank account with your business’s legal name and use it for all the payments related to your business. Having a business bank account will make your company more reliable and credible to stakeholders, increasing the business credit score. Make sure you pay all the bills in time, as it also affects your business credit. 

  • Have a business phone number

 Having a dedicated phone number through which investors, suppliers, and customers can connect to you will make your business seem more credible too. List the number in the telephone directory so that everyone can find it. 

Bottom Line

To sum up, strong business credit can provide numerous financial advantages and help your business grow. We hope that after reading this article, you have a clear idea of what is business credit.

About Derick..

Derick O.

Business Credit and Real Estate

I’m Ghanaian body building nerd who loves teaching  about  Business, Business Credit and Real Estate!