How to Build Business Credit in 2023
Strong business credit can provide you with financing, better terms with suppliers and other advantages. In 2023 it may become even harder to access financing, so taking proactive steps now to build credit will give you the funds for growth and expansion.
Begin by checking your business and see if it is currently registered by the three major business credit bureaus (Equifax, Experian and TransUnion). Make sure it is. Subsequently, apply for a DUNS number which local and international suppliers and creditors use to verify your company’s creditworthiness.
Establishing a business credit file
No matter if your business is new or established, building your credit is essential for getting financing for growth, expansion, inventory needs or other requirements. Establishing credit can open doors to other opportunities as well.
In 2023, there are many ways to start building your company’s credit. But the initial step should be creating a business credit file. This will enable credit reporting agencies to monitor your company’s payment history and build long-term business credit.
Once your business credit file is established, you can begin applying for new accounts to build it. Be aware that it may take several months before these new accounts appear on your reports; thus, make sure all payments are made promptly in order to maximize the benefits of an increased credit score.
To separate your business finances from personal ones, it may be beneficial to form a legal entity such as an LLC or S Corporation. Doing this will grant you an employer identification number (EIN), giving you access to an independent tax ID and separating business bank accounts from personal ones.
Getting a business credit card
Business credit cards can help you build business credit while making it simple to finance your company’s day-to-day activities. They come in a range of flavors, such as cards for small startups or those offering 0% intro APR offers and rewards programs tailored towards specific categories like office supplies or travel.
The business credit card application process typically entails answering questions about your company’s annual revenue, number of employees, and legal structure, alog with other personal and business information.
Many business credit cards will ask for a personal guarantee from the owner to protect the issuer in case of default. You will want to take your time and consider whether or not you want to accept any business credit card offers, especially those requiring a personal guarantee.
When applying for a business credit card, you want to make sure that you’ll be able to pay back any amount that you use and also make sure that the interest rate is competitive and the terms are favorable to your needs as a business owner. This includes researching and selecting one card that meets your needs, gathering relevant information, and verifying if you would likely qualify based on your credit score before applying. *Only get a business credit card if you can keep your expenses and use of the card under control AND you can pay off the balance every month in order to avoid accruing lots of interest. Also, only specific business credit cards report to the business credit bureaus. Most business credit cards do not, so you need to find the right business credit card and it must be in the name of your business and report to the business credit bureaus.
Getting a business line of credit to build credit
Business lines of credit are a type of business financing that provides access to an established amount of credit that your business can draw against if needed. Similar to credit cards, this account has an alternating nature; interest accrues as you use it.
When applying for a business line of credit, the lender will assess both your personal and business credit to evaluate risk and decide how much of a loan you can afford. This may include reviewing both your business plan and operating costs.
The lender will examine your business’s financial history, such as how long you’ve been in operation and the amount of annual revenue generated. Generally speaking, the longer a business has been active, the greater its chances are of being approved for a business line of credit.
When seeking a business line of credit, search for a lender with competitive terms and an excellent reputation for supporting small businesses. You have several options to choose from: banks, credit unions, or online lenders. *Only get a business line of credit if your business is ready and make sure you use it responsibly, don’t accrue a large balance, and make your payments on time every single month.
Connecting with other businesses
Networking with other businesses within your industry could help you make connections. This could involve setting up meetings to network and share resources, or it could mean asking for trade references. Having a strong credit plan will enable you to secure competitive loan rates and terms tailored to your particular business needs.
Solid credit also means you won’t need to use your personal credit line for operations. Thankfully, credit card companies have made it simpler for small business owners to establish and manage credit in an efficient and cost-effective way. There are many credit cards specifically tailored to small businesses with low-interest rates and fees; this allows you to use your line for business-related expenses while paying it off over time. Plus, some business credit cards even come with rewards programs!
