How to Build Commercial Credit

Sole proprietors just starting out usually depend on their personal-credit histories to prove their creditworthiness to banks. As a company grows, however, establishing a separate business credit history will make lenders more comfortable about lending to you. So where can you start if you're a new business owner? Is there a way to speed up the process of establishing and building commercial credit? In fact, there is, if you concentrate your efforts on the right activities. Try this and save years of frustration.

Things You'll Need

• Local business name registration
• Current business license
• Corporate checking account
• Corporate savings account
• CPA-validated company records and financial books
• Registration with commercial credit bureaus
• Corporate credit accounts with gas stations, big suppliers and vendors

Instructions

1. 

   Incorporate.

   Form a business entity as soon as you can if you are currently a sole proprietor. This can be an LLC corporation or a regular C corporation. Incorporating your business makes it look more stable and secure than a sole proprietorship, and will give you much more liability protection in case something goes wrong.

2. 

   Hire a CPA.

   Hire an experienced Certified Public Accountant (CPA) to audit and validate your business records and financial statements. This will add credibility to your requests for business loans from your bank.

3. 

   Register with commercial credit bureaus.

   Register with commercial credit bureaus like Dun & Bradstreet, Experian, the Small Business Financial Exchange and Cortera. Lenders always check these bureaus for your business credit history before they approve commercial loans.

4. 

   Open corporate credit accounts

   Open corporation credit card accounts with vendors and suppliers who will report your company's payment history to the commercial credit bureaus on a regular basis. These may include gas stations, home improvement stores and stores like Dell Computers, HP and Office Depot.

5. 

   Manage cash flow.

   Keep small balances on each credit account you have and pay the balances off over six months to a year. At the same time, pay all your bills from your creditors ten days early. Never pay a bill late in your first two years in business, because late payments show up as a negative on your credit score. Handling your company's cash flow so you can pay bills early is a good sign of your company's creditworthiness.

6. Open a corporate cash account separate from your company checking account, and keep $3,000 to $5,000 in the account at all times. This will allow you to take short-term, one-year collateralized loans with just your signature when starting out in your business. Pay the loans off in three to four equal installments, rinse and repeat until your lender stops requiring collateral for your loans. Doing this will build a strong lending relationship and trust with your commercial bank.

Tips & Warnings

• Building strong commercial creditworthiness takes time and consistency. Do not try to expand your business too quickly during its first two or three years. Instead, conserve your cash flow, pay your bills early, and build strong relationships with your customers, vendors and suppliers.

References

• Wall Street Journal - 3 Ways to Build Business Credit

Resources

• Dun & Bradstreet for Small Businesses
• Experian Credit Services
• Small Business financial Exchange
• Cortera Small Business Help