Building Yourself A New Business Credit Rating

New and established businesses may try to establish new business credit. Whether you are a start up venture or have converted your sole proprietorship to an LLC or Corporation, establishing business credit is one of the most important first steps.

Start up Business Credit

In order to establish business credit, your business needs to be its own entity. This means that it is an LLC or Incorporated. There are also other requirements such as a separate business bank account, business line and a yellow page listing.

There are a few additional items you may also need:  First, you will need to obtain your FEIN (Federal Employer Identification Number). This can be done through the IRS (Internal Revenue Service).   The form and can directly download from their site and is a quick application process. If you are using a company to help you incorporate, you can also contract them to set up your FEIN as well.  You can also incorporate your business yourself, just keep in mind that you will need a FEIN number. 

Next,  after you have your FEIN, you will need to get a D-U-N-S Number. This is a number that is issued by Dun and Bradstreet and contains 9 digits. It will serve as your business credit identification.   Remember to keep all of your information consistent because it all links together. This includes your business line, address, account number and billing address for companies that report on your business credit.

Work With Companies That Report

A company does not have to report you to the credit bureau. Make sure you talk with the company you will be purchasing from and make sure they do report monthly. If not, you may want to look somewhere else. Establishing NET 30 accounts are a great start to building a solid new business credit rating.

Business Credit Bureaus 

There are three main players in the business credit world. They are Dun and Bradstreet, Corporate Experian and Equifax Business. These are the credit bureaus loan grantors pull from. It is important to be well established with all three.

Dun and Bradstreet was the first business credit bureau established to help companies create trustworthy and good business relationships. They are now the leader and number one source for business information.

Corporate Experian and Equifax Business are names many recognize, however, on a personal level. Although Experian and Equifax have personal credit reports, business credit reports are weighted differently.

Why Establishing Business Credit Is Important

Establishing business credit is important because in order to a business to grow and prosper, it will eventually need to borrow money. Without a business credit to fall back on, you will have to offer a personal guarantee. Giving personal guarantee’s, even if your personal credit is pristine, can be a bad idea.  If anything should go wrong with the business, even if something is out of anyone control, you will be personally responsible and your personal life will suffer.  Your personal credit score will be lowered. Additionally a business will contain a significantly larger amount of  inquires on their credit report,  than a person would and they carry a higher debt.  Lastly, personal credit was not designed to carry large debts, and when compared to income, the debt to income ratio becomes out of balance and credit ratings fall.

Possibly, the most important factor to establish business credit and carry the load yourself is because: should your business fail, so will you. You will be financially responsible for the business debts and could lose your car, home and savings.  Your credit score will suffer and the rebuilding process will become challenging.

As you can see, establishing new business credit not only personally protects you, but allows you to make the most out of your business.

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