Building company credit quickly entails adopting a tried-and-true credit-building method.
Our How to Build Company Credit guide will bring you through the top ten tactics for swiftly building business credit.
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10 Best Business Credit Building Strategies
We’ve broken down the process of establishing company credit into ten phases. The first five stages are fundamental. These are required to establish your company as a legitimate corporate organisation and to be considered seriously by lenders.
The second phase consists of the necessary measures for establishing business credit. They are the steps you must do in order for lenders to grant you a loan.
Finally, although the third step is not required, these tactics seem to speed up the credit development process, allowing you to create company credit quickly and become much more lendable.
Create an LLC
Obtain an EIN
Establish a Business Bank Account
Purchase a Business Website
Purchase a Business Phone Line
Set up Net-30 Vendor Accounts
Apply for a Business Credit Card
Apply for Credit Cards in-Store
Request higher Net-30 credit lines.
Request a Business Loan
Establish Your Company
These first five steps for swiftly developing business credit are intended to provide the groundwork for applying for and getting authorised for business credit cards and business loans as soon as feasible.
1. Establish an LLC
Before extending business loans, most lenders and banks demand that a company be formed as a legal entity.
Why do banks and lending institutions favour legal business entities? A legal corporation safeguards corporate assets, which in turn protects the lender from danger. This is due to the fact that legal companies provide limited liability protection, resulting in a legal split between the company and the business owner.
For example, if a company owner is sued and has an LLC in place, it is significantly less probable that the assets or operations of the firm would be harmed.
As a result of forming a legal corporation, the business owner’s personal assets will be secured since the business now has its own legal business name. A limited liability corporation (LLC) is a smart method to secure your home, vehicle, and personal bank accounts if your company is sued or goes bankrupt.
2. Obtain an EIN
Most firms are required by the IRS to get an Employer Identification Number (EIN). For small firms, this is similar to a Social Security number. An EIN is tied to your company credit profiles in the same way that your Social Security number is attached to your personal credit profiles. Lenders utilise this score to determine your creditworthiness while reviewing your company credit.
To create a business bank account, all banks will demand an EIN. Having one of these will guarantee that your company begins a credit trail that is unrelated to your Social Security number.
3. Establish a Business Bank Account
A corporate bank account keeps your personal and company funds separate. This is crucial for maintaining limited liability protection and establishing a distinct corporate credit file from your personal credit history. Lenders, banks, and creditors often utilise business bank accounts to establish loan and credit eligibility.
Maintaining a business bank account also adds clarity to your company’s finances, making it easier for lenders to evaluate how much your company is worth and, given your previous spending patterns, how likely your company will be able to repay the loan.
It is essential to have the proper company bank account. You want one that will provide excellent terms, flexibility, and long-term support for your company.
4. Establish a Business Website
Having a business website makes it exceedingly simple for lenders to learn about your company’s credit, which plays a factor in their decision-making process when determining whether or not to accept your company for a loan. Prospective lenders may raise an eyebrow if you do not have a good company website.
The more professional and user-friendly your company’s website is, the better. Lenders want to know about your company. Your website should reflect what your company does, who its customers are, where it is situated, what goods and services it offers, and create a visual representation of your company.
5. Purchase a Business Phone Line
A dedicated business phone line is one method for establishing and improving company credit. Lenders do background checks to see whether you match particular business credit requirements, such as having an established company phone number listed on internet sources, your website, social media platforms, and so on.
The optimum sort of business phone line will be determined by the type of company you operate. For example, if you own a small company, you may think about investing in a VoIP service. This enables you to set up a virtual office number that consumers may contact directly instead of dialling long-distance lines.
Begin Developing Your Business Credit
Once you’ve laid the groundwork, it’s time to start fast creating solid company credit by collaborating with organisations that assist grow business credit. Building business credit also aids in the development of strong credit ratings.
Each step that follows builds on the previous ones. We suggest completing the procedures to establish company credit as soon as feasible.
6. Create Net 30 Vendor Accounts
Net 30 accounts enable you to purchase things from a vendor, who will then charge you for your order, and you will have 30 days to pay them from the invoice date. The majority of net 30 merchants disclose these payments to the main commercial credit agencies. This assists you in establishing tradelines on your business credit profiles in order to begin boosting your company credit.
And as long as you pay on time or, better yet, early, you’ll be helping to improve your company credit ratings. The higher your credit ratings, the simpler it will be to get a business loan in the future.
7. Apply for a Business Credit Card
The amount of credit you may be authorised for is determined by the length of time you’ve been in company and your monthly earnings. It also impacts whether you will be awarded a secured or unsecured company credit card.
A deposit equivalent to the amount you may spend on the card each month is required for a secured business credit card. The lending institution or issuing bank sets the limit on an unsecured business credit card, which does not need a deposit.
Making on-time monthly payments without exceeding 50% of your credit card limit assures that you will qualify for larger credit limits over time. This is how you quickly establish company credit by making regular, on-time (ideally early) payments and wisely utilising your credit to grow your business. These increased lines of business credit will also be rewarded by the main business credit reporting agencies.
8. Apply for Credit Cards in-Store
In-store credit cards allow you to buy products from businesses you frequent. These cards function similarly to ordinary credit cards, but they only allow you to make purchases at the shops where you have cards.
In-store credit cards, like secured business credit cards, are simpler to get than unsecured credit cards, making them an excellent credit-building approach for small companies. Your company credit ratings will be updated by the main business credit reporting agencies to reflect this improved credit history.
When shopping for an in-store credit card, be strategic. We suggest applying to places where you conduct business often, such as office supply stores and other big-box department stores where you purchase for business supplies.
9. Request higher Net-30 credit lines.
Your credit usage score is calculated by dividing your net 30 account balance by your credit line limit. Lenders like a low credit balance-to-credit-limit ratio. Your credit utilisation score improves when your credit limit increases and your debt decreases. Your company credit score rises when your credit usage rating improves.
This will provide you with more credit and better financing conditions.
Increase your net 30 credit limits with the net 30 merchants with whom you presently conduct business. You should be accepted for bigger credit lines if you’ve paid your net 30 bills on time for at least six months. This will also boost your company’s credit score.
10. Obtain a Business Loan
Business loans allow you to borrow bigger sums of money. Business entrepreneurs utilise this funding to rapidly expand their businesses.
The ultimate objective of growing business credit is to be accepted for the best terms on company loans. You’ve put yourself up for acceptance for the finest business loans by following the procedures outlined above and making on-time payments.