How to Build Credit for Your New Business

Credit ratings affect a small-business person's ability to negotiate good prices for goods and supplies.

Small businesses fail primarily due to a lack of funds, according to the U.S. Small Business Administration (SBA). Maintaining good business credit can ensure that small businesses get funding when they need it. Creditors use the same evaluation process to determine the creditworthiness of a business applicant as they would with a personal credit applicant, according to Norman David Roussell, author of "Principles of Building Business Credit." Since business credit can influence everything from financing costs to insurance premiums, it behooves businesses to strive for the best credit possible.

Instructions

1. Get a Tax ID or Employer Identification Number for your business so that you can get registered with the business credit bureaus like Dun and Bradstreet (D&B), says business credit specialist Marco Carbajo. Corporate lenders use the tax ID to conduct a business credit check on your company.

2. Apply for a D-U-N-S number from D&B directly by calling or visiting its website. Once you have a business credit file, make sure you understand what information it contains. Vendors, suppliers and financial institutions use this information to make credit decisions, so the information needs to be complete and accurate.

3. Pay your bills on time. It's the single most important thing you can do to improve your business credit, according to the SBA. Also, use any line of credit judiciously and avoid overextending your business. While payment behavior is important, it's not the only factor that determines business credit ratings. D&B uses 150 separate factors to determine business credit such as the industry type, revenues and number of employees.

4. Monitor your business credit file to catch any changes to your ratings before they influence your relationship with customers, suppliers and financial institutions. Keep your credit file as current and accurate as possible. Update changes such as location, number of employees, outstanding suits or liens and revenues, says the SBA. Notify the reporting agencies promptly if you find any discrepancies.

5. Apply for business credit with suppliers of products you use such as office supplies and computer equipment. Many types of suppliers extend lines of credit to businesses. Financing purchases on a credit line improves your cash flow which is vital to a new business. Carbajo adds that businesses can frequently obtain 10 to 100 times greater financing than an individual. And, by maintaining a high credit rating, it becomes easier to qualify in the future.

6. Monitor your suppliers' and customers' credit as well. By doing this you protect yourself from losses caused by default by either of these groups. Imagine the cost of going to pick up sales brochures at your printer's shop only to find the doors closed. If you paid in advance, that money is gone. And, knowing which customers are "slow" or "no pay" accounts allows you to avoid doing business with those groups, which improves cash flow.

References

• Experian: Does Your Credit Report Reflect Your Good Payment Behavior?
• Experian: Establish Business Credit; Begin Building Your Business Credit Report
• Capital Asset Project, Inc.: Building Business Credit Made Simple; Norman David Roussell
• SBA.gov: How To Build Business Credit For Your Start Up; June 1, 2011
• SBA.gov: Managing Your Business Credit
• IRS.gov: Employer ID Numbers (EINs)

Resources

• Capital Access Project Inc.: Cashflow Calculator