How Do I Build Business Credit For My LLC?

Raising capital is one of the many challenges new entrepreneurs face when they launch their businesses. Not all business owners have enough funding to grow their operations. So, as a solution, they look for lenders and investors who can help them get the capital they need to scale their ventures.

The caveat is that most lenders and investors require businesses to present a proven record of borrowing and repaying loans before they can offer them funding. Others even require substantial assets for collateral, which not all startups have.

This is where building business credit comes in. A strong business credit score will help you raise the capital your business needs by demonstrating its ability to manage its financial obligations.

Once you have a robust business credit profile, you can easily get funding for your operations without a long financial history or collateral.

What does “Building Business Credit” Mean?

Business credit refers to a company’s creditworthiness, which is distinct from personal credit. It evaluates a business’s borrowing and repayment history through factors like payment records, outstanding debt, credit utilization ratio, and the length of its credit history. Unlike personal credit, business credit is tied to the company, not the individual owners or partners.

Lenders and suppliers typically use a company’s business credit score to determine how risky it is to extend credit to them. The higher a business’s score, the more creditworthy it is.

Building business credit means increasing your business’s creditworthiness through various strategies, such as paying your business credit cards on time and keeping your credit utilization ratio low.

Why is Building Business Credit Important?

There are several advantages to building a strong business credit:

Access to Funding

The biggest advantage to building a strong business credit profile is access to funding. You’ll have a much easier time getting approved for loans or lines of credit when you have a good business credit score.

Better Terms

A good business credit score will also allow you to get better terms from lenders and suppliers. If a lender thinks your business is a reliable borrower, they may offer lower interest rates or more flexible payment terms.

Some B2B vendors may not require prepayment if they think your business credit score is good.

Keeps Your Finances Separate

Keeping your personal and business finances separate is crucial, especially when incorporating your business as a limited liability company (LLC) or a corporation. It will allow you to maintain limited liability and prevent courts from “piercing the corporate veil.”

Building business credit will help you achieve this by giving your company its financial identity. Your business will be able to secure loans and credit lines without putting your personal credit at risk.

How Do I Build Business Credit?

You can use different strategies to build business credit. However, if you want to do it the right way, consider following these nine steps:

Incorporate your business.

The first step to building business credit is incorporating. Since sole proprietorships and partnerships are tied to their owners, these entities cannot have business credit. To build business credit, you must incorporate your business as a separate legal entity, like an LLC or a corporation.

Obtain an employer identification number (EIN).

Once you’ve incorporated your business as an LLC, you must obtain an employer identification number (EIN)  from the IRS. EINs are unique nine-digit codes used for identifying businesses.

Your company will need an EIN to file taxes, open business bank accounts, and hire employees.

You should also get EINs, which are free and readily available from the IRS website or by mail.

Get a Dun & Bradstreet Number

The Dun & Bradstreet number, or the DUNS number, is another nine-digit code used to identify businesses. You may need one to apply for certain credit cards, but more importantly, you need a DUNS number to monitor your credit report.

Apply for a business credit card.

Business credit cards are one of the most useful tools for building credit. They work like a normal credit card, allowing you to purchase and pay for expenses using only a card.

Once you’ve built a positive payment history for your credit card, you’ll have a much easier time qualifying for larger lines of credit and even loans.

Establish a tradeline with a vendor.

Establishing tradelines is another excellent way to build business credit. Tradelines allow you to pay for inventory within several days or weeks.

The most common example of this is Net-30 accounts. These tradelines allow business owners like you to pay their invoices within 30 days and can help you boost your credit score. However, not all supplies report payments to business credit bureaus.

If your supplier is one of them, you can list them as a trade reference so that your credit reporting agency will collect your trade data.

Pay your bills on time.

After establishing multiple lines of credit, you must pay them on time. Late payments could negatively impact your LLC’s credit score like your personal credit.

A few missed payments could easily lower your score. So, to prevent this, make sure you pay your bills on time. Put your deadlines on your calendar so that you don’t forget them. You can also create alerts so that you’ll know when to pay.

Keep your credit utilization ratio low.

The credit utilization ratio measures how much of your credit limit you’ve used. The lower your ratio is, the better. Why? A low credit utilization ratio shows you’re responsible with your credit. You’re not overextending yourself, which lenders see as a good thing.

A good ratio is below 30%, but don’t be afraid to strive for 10% or less. You can achieve this by paying off your balances in full each month.

Monitor your credit report regularly.

The last step to building business credit is regularly monitoring your credit reports. Regular monitoring will allow you to correct any mistakes in your credit reports and adjust your credit-building strategies.

Start Building Business Credit Today

Building a strong business credit profile is crucial to your business’s growth. A high business credit score will give you access to funding and boost your business’s credibility with lenders, suppliers, and potential investors.

Start building your business credit today with Inc. Authority’s help!

Our BizCredit program will guide you in building a strong business credit profile in 90 days. We have a dedicated Business Credit Coach who will guide you through building a good credit score.

To learn more, visit our website here.