The importance of building business credit and the power of understanding and having a credit history–for both startups and existing businesses.

Developing credit early in the creation or development of a business will affect its ability to succeed and grow. It will also provide a good indicator to lenders, partners, clients, and vendors that the business is financially reliable and well-managed. It will create access to capital, improve the conditions to borrow money, reduce insurance rates, separate personal from business credit, ease equipment acquisitions or leasing conditions, and generate interest to hire and retain experienced employees.

How can you build strong business credit scores and ratings?

Part of it comes down to your ability to repay debts, but there’s more to the process than making on-time payments. Here are a few basic steps a business can follow, and best practices that may be able to help you build your company’s business credit file.

  1. Set up the business as a legal entity completely separate from the individual owner(s). Determine the best legal structure for the business. Use free consulting from local entities such as your local SBDC, Scape, Region 9 and Region 10, among others.
  2. Obtain an employer identification number (EIN) through www.irs.gov. Furthermore, explore Experian and Dun & Bradstreet (DUNS) business credit scores; they both help create a credit profile for the business.
  3. Additionally, having a separate bank account will create transparency to handle business-related transactions and will make the accounting process easier.
  4. Apply for a business credit card to establish credit in the name of the business. If the business is in construction, open a credit card at a construction supply company, or ask your local bank about having a business line of credit via credit card as part of the business bank checking or savings account. Another way to create business credit is to ask a vendor or supplier for a credit account to allow net payments after 15 or 30 days.

A positive business credit history for a business can create an adequate source of financing for equipment, inventory, property, general supplies, and improve ongoing cash flow. It provides a plan “B” for new business owners when planning an expansion or unexpected expenses present themselves. Furthermore, it can strengthen the borrowing capacity, which in turn can improve and smooth business activities.

Let us help you establish or improve your credit possibilities, personally or for your business! Talk to a member of the FSWCF team. In addition, a useful tool available to individuals is First Southwest Bank’s Credit Builder Loan Program.

We are here to help you grow your business and achieve your financial goals!

-Rosy McDonough, Executive Director