How to Build Business Credit and Unlock Financial Opportunities
Running a small business takes vision, dedication, and access to funding. For many business owners, that last item is the sticking point that keeps them from reaching their full potential. Some business owners do not realize the need for good business credit until it's too late—when they’re looking at a denied loan application, a request for upfront payment from a vendor, or a lost lease opportunity. Weak business credit can keep even the most promising companies from exploring new opportunities for growth, and that’s why taking steps to build business credit should be a top priority.
The good news: you can take control and strengthen business credit the right way. When you build your business credit in a sustainable way, you can unlock better financing terms, streamline crucial business operations, and strengthen your company’s financial future. At TowneBank, we’re here to help you understand your credit landscape and take bold steps toward growth.
Why Your Business Credit Score Matters
A strong business credit score can benefit your business in a variety of ways:
- Help you qualify for loans and lines of credit at lower interest rates
- Negotiate better vendor and supplier payment terms
- Strengthen your position when negotiating leases and other contracts
- Protect your personal assets by limiting the need for personal guarantees
Most importantly, building business credit makes your company more resilient. Good credit allows you to explore whichever opportunity pathways best serve your business—launching new products, renovating spaces, opening new branches, or expanding your team with new talent. When you work with your dedicated TowneBank banker to explore ways to build business credit fast, you can discover new ways to use your company’s strong credit to your advantage.
3 Steps to Establish and Build Business Credit
Establishing business credit is a marathon, not a sprint. When you lay the right groundwork and take the proper steps early on to build business credit fast, you can ensure that your company is recognized as its own business entity.
Choose the Right Legal Structure
Choosing the right business structure establishes your business as its own entity, rather than it simply being an extension of you. Business structures that give your company the chance to develop its own credit profile include LLCs, S-corp or C-corp corporations, and LLPs.
Register & Obtain an EIN
An Employer Identification Number (or EIN) works like a Social Security number for your business. With it, you can file taxes, open financial accounts, and register with credit bureaus.
Open a Business Checking Account
With a small business checking account, you can improve your company’s financial health and build its credibility. Dedicated bank accounts that aren’t enmeshed with your own personal credit score and finances show lenders and partners that your business is professionally managed. Ensure that your business line of credit and checking account are associated with your business address to ensure continuity across your financial records and credit score. You should also verify that your legal business name is the same across all accounts for the same reason.
The Value Classic Business Checking account at TowneBank can get you up and running with as little as $100 to start and up to 150 free items per monthly statement. With a minimum daily balance of just $3,000, enjoy zero monthly maintenance fees. Through it all, your designated local business banker will help you make important financial decisions that put your business on the path to growth.
Once you’ve taken these first few critical steps in getting your business established, you can start putting in the work to build business credit history.
Building Vendor Relationships
Nurturing strong relationships with your vendors is a strategic way to build business credit. Trade credit is a form of short-term business financing in which suppliers allow customers to purchase goods or services on credit, with payment due later. This type of payment structure is very common in business-to-business arrangements, so you may have multiple opportunities to build your credit this way. You can use ACH payments for business to streamline vendor and supplier payments, save money on recurring payments, and take a more hands-off approach to your finances.
1. Establish Terms
Begin by looking for suppliers that offer net-30 or net-60 payment terms. These terms make it easier for you to rapidly establish a history of on-time payments, giving your small business credit a positive boost.
2. Choose Business Vendors that Report to Credit Bureaus
The main business credit bureaus are Dun & Bradstreet, Experian, and Equifax. Dun & Bradstreet is responsible for creating the Paydex score, a commonly used business credit score. However, not all vendors report to the credit bureaus—and if you primarily work with vendors that don’t report to the bureaus, all your on-time payments may not do anything for your business credit. Instead of working with the first vendor you find with favorable terms, prioritize working with companies whose partnership will help your credit over time. This is one of the easiest ways to build business credit.
3. Use Trade References to Your Advantage and to Build Business Credit
Sometimes, getting in with companies that offer favorable payment terms or report to credit bureaus can be difficult if you don’t already have established business credit. This may be when you use trade references to get your foot in the door and build business credit fast. Trade references are reports from suppliers or vendors that detail your payment history and general creditworthiness. Essentially, they’re provided by companies vouching for your financial responsibility. For those without an established credit profile, this may be the best way to build business credit.
At TowneBank, we understand the unique credit needs that businesses across different industries have. No matter which industry you operate in, our small business banking team and your dedicated banker will work alongside you to help you build vendor partnerships that take your business to the next level.
Using Business Credit Cards to Build Business Credit*
Credit cards can play a strategic role in building your business’s credit, but you must choose your cards wisely and use them properly for maximum benefit. When used properly, they may be the best way to build business credit. The Small Business Administration found that 46% of all small businesses use personal credit cards, and that’s a lost opportunity to strengthen your business credit and protect your personal assets. By focusing on business credit from the beginning, startups can set themselves up for long-term creditworthiness.
1. Choose the Right Card and Issuer
Each business credit card offers unique benefits that can get you closer to achieving your business’s financial goals. You may want to strike a balance between a manageable interest rate, rewards your business can use, and a credit limit that allows you to stay under the ideal usage rate for credit building. Business credit cards, such as those offered by TowneBank, typically report to business credit bureaus and can help build your credit. Different business cards are tailored to different business needs.
2. Use Cards Responsibly and Pay on Time to Build Business Credit
Ideally, your credit card utilization rate should stay near or below 30%. Using too much of your available credit may be detrimental to your business credit score. Paying your bill on time every month is a simple way to build business credit fast, as it strengthens the part of your credit score determined by on-time payments.
3. Automate Where You Can to Build Business Credit
Automating your credit card usage and payments can help you save time and avoid unintentional missed payments. Look into TowneBank tools like Autobooks^ to simplify invoicing and receive payments more quickly. Consider setting up automatic payments through services like Bill Pay so you never miss a due date.
Monitoring and Protecting Your Business Credit
Just like you monitor your personal credit, you must stay on top of changes to your business credit report and score. It takes time and consistency to build your business credit, but only one or two mistakes to negatively impact it. Errors, fraud, and missed payments that go unnoticed can quietly wreak havoc on your business credit score and lead to lost opportunities.
1. Check Your Business Credit Reports Regularly
At minimum, check your business credit files once per year. However, you’ll likely benefit from more frequent checks. Be sure to check Dun & Bradstreet, Experian, and Equifax, as not all payments are reported to every bureau. If there’s fraud or an incorrectly reported missing payment on your credit report, you don’t want to let it tank your credit score for a full year until you catch it. With your dedicated banker at TowneBank, you can better understand what your business credit report includes, what’s affecting your score, and how you can improve your financial standing.
2. Correct Errors Immediately
When you’re checking your business credit reports, take note of any entries, tradelines, information you cannot verify. Use your financial records to determine whether or not they are accurate. If your credit report does include inaccurate information, dispute it with business credit reporting agencies immediately. The sooner you set the record straight, the better it is for your business credit.
3. Protect Against Identity Theft
Your business credit can be hijacked just as easily as your personal credit, so talk to your TowneBank dedicated banker about how to safeguard it. Use two-factor authentication on all accounts that offer it, make account monitoring a regular part of your administrative work, and look into business identity protection services. We provide a variety of resources to help small business owners protect against identity theft.
Leveraging Business Credit for Growth
Once you’ve started to reap the rewards of strategic credit building and different ways to build business credit, you can use your strong credit to grow, invest, and expand. As an added benefit, utilizing your business credit well is one of the best ways to build business credit.
1. Secure Better Financing
Better credit means your business enjoys more access to better loan terms, lines of credit, and equipment financing. A survey by Nav found that business owners and entrepreneurs who know and understand their business credit score are 41% more likely to get approved for small business loans. Every dollar you save on interest and other fees is a dollar you can reinvest in your business and put to work for you.
2. Negotiate More Favorable Terms
When suppliers and service providers have clear proof that you keep your commitments and pay your bills, they are more inclined to offer longer repayment windows and ongoing discounts. At the same time you gain flexibility in payment terms and improve your cash flow, you earn the respect of those you partner with.
3. Plan for the Future with Confidence
Whether you are hiring new staff, launching a new service line, or exploring new locations for your growing business, solid business credit opens doors for you. It gives you the financial agility to act when opportunity comes calling.
Frequently Asked Questions
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You have to legally establish your business as an entity separate from yourself by choosing the appropriate business structure, getting an EIN with the IRS, and opening a new business bank account. This ensures that your personal and business do not end up commingled. -
The larger your business grows, the more important it is to have flexibility in your finances and how you use money to achieve your goals. Good credit empowers you to tap into higher credit limits, lower interest rates, favorable vendor relationships, and better loan terms. -
Business credit reflects your company’s creditworthiness and financial responsibility. Vendors, suppliers, and lenders look at your credit to determine whether or not you’re likely to pay your bills if they work with you. Strong business credit can help you borrow more competitively, negotiate contract terms, and grow your business without relying on personal finances.
Build Business Credit with TowneBank
Your business credit profile isn’t just a number or a list of credit accounts. It’s a tool that you can leverage to take your business further. Whether your business is just starting out or you’re looking to grow your established business, utilizing business credit effectively can shape the future of your company.
TowneBank is here to support you at every stage of your business’s growth. We’re proud to serve businesses like yours that make our community stronger and more vibrant. Please reach out to your local TowneBank office to find out what a dedicated business banker could do for your company by helping you build business credit. We would love to explain our business checking options to you, help you evaluate different business credit card options, and turn your business dreams into reality.
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