5 Tips for Building Good Business Credit

5 Tips for Building Good Business Credit

At some point, your small business may need to borrow money to grow. That means you'll be sitting down with a loan officer or applying for credit. Without a good business credit score, chances are slim that you'll get the funding you need.

1. Talk to Your Bank

Sit down with a personal banker from the institution where you have your business checking and other accounts. Because it costs more money to get a new customer than to keep an existing one, your bank will be motivated to work with you. Ask about business credit cards, credit lines and small business loans. The bank might ask for your personal guarantee on the credit or for payments automatically drafted from your existing accounts--or both. As with your vendors, this may not be the best deal in town, but it can be an excellent stepping stone. 

2. Avoid using your personal credit for business 

When it comes to money, you need to cut the personal ties between you and your company. Intermingling personal and business finances could have a detrimental effect on your efforts to build business credit. Stop putting business expenses on your personal credit card. Quit paying for equipment and supplies out of your personal accounts.

As you seek to establish your business credit rating, make sure that you're using your Employee Identification Number (EIN) and not your social security number to open your business accounts. Although the lender or credit card company might check your personal credit history in order to open a new account, business accounts should always be established under the business' name and tax identification. Otherwise your activity on these accounts--on time payments and appropriate utilization, for example, won't help to improve your business credit rating.

3. Apply for credit before you need it. 

To begin building a credit history for your business, apply for at least some sort of credit soon after starting up. A small business will often have to establish itself for two years before a bank feels comfortable offering a sizable credit line. But there are ways around that, such as getting a business credit card or applying for a small bank loan. If you have trouble scoring even a small loan, consider opening a store-based credit line or getting a small secured credit card with a low limit. Some major retailers that supply to small businesses, such as OfficeMax or Home Depot, offer commercial credit accounts that can help build a credit history for your business.

4. Make your payments on time.

The most important thing you can do for your business credit score — and your personal credit score, for that matter — is make 100% of your payments on time. While payments late by a few days likely won’t be reported as such, it’s a good habit to get into making all payments before the due date. Plus, you’ll avoid those pesky late fees!

5. Increase your credit limit

If you're unable to reduce your company's need for credit, getting your credit limit increased is another way to minimize the appearance of overall utilization. In this case, instead of reducing the slice of your metaphorical credit limit pie being used, you're simply making the pie bigger. You can increase your credit limit either by opening additional lines of credit or requesting a higher credit limit on your current accounts.