Building business credit is essential to establishing financial stability and success if you’re a small business owner. However, it can take time for many startups to figure out where to begin. Let’s walk through 7 steps you can use to build your business credit when you are building your business.

Step 1: Establish Your Business Entity

You need to establish your business entity before you can start building business credit. To do this, you must obtain a tax ID number, register your business with your state, and obtain any necessary licenses or permits.

Step 2: Open a Business Bank Account

Separating your personal and business finances is crucial for the success of your business and building business credit. Open a business bank account in your company’s name and use it exclusively for business expenses.

Step 3: Apply for a Business Credit Card

A business credit card can help you establish credit and manage expenses. Look for a card with rewards that align with your business needs and pay the balance in full each month to avoid high-interest charges.

Step 4: Establish Trade Lines with Vendors

Many vendors offer credit to businesses that pay their bills on time. Start by establishing trade lines with vendors you regularly work with, such as suppliers or service providers. An added benefit is that some extend discounts for various payment terms and early payment.

Step 5: Monitor Your Credit Score

Regularly monitoring your business credit score can help you identify areas for improvement and catch errors or fraudulent activity. Use a credit monitoring service or request a free credit report from the major credit bureaus each year.

Step 6: Pay Bills on Time

Consistently paying your bills on time is critical to building business credit. Late payments can significantly impact your credit score. In addition, this will make it challenging to obtain credit in the future because vendors may report these late payments to credit agencies.  Showing payments received in a timely manner will improve credit recommendations with these agencies.

Step 7: Partner with Lenders Who Work with Startups

Lenders that offer services such as accounts receivable financing (also called factoring) and purchase order financing are perfect to help you build business credit. These financing services will help you increase your working capital providing you with the funds to pay your vendors and bills on time. With these financing options, your customer’s credit will be considered instead of yours, making them an excellent choice for companies as they build their credit. Additionally, they often offer services to help your growing business, such as credit checks on your customers and collection services.

Focus on establishing a track record of responsible credit use, paying bills on time, and keeping your credit utilization low. Building business credit takes time, and these steps will set you on the right path. Be patient and stay disciplined in your financial management practices. You can establish a strong credit profile that will help your business thrive with consistent effort. If you could use access to working capital to help you build your business credit, call our finance experts at (847) 579-4780 to discuss what would work best for your business.