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How To Establish And Build Business Credit For Startups

Business Credit For Startups

So you’ve set up your awesome new startup idea and you’re in the early stages of your small business. Establishing business credit is the next step in your plan and the first step to being able to request business loans and get business credit cards. This credit is separate from your personal credit, so you can’t just piggyback off of your personal loans or credit cards. 

It’s important to build credit as a business to establish yourself financially and look good in the eyes of financial institutions and lenders.

It also helps you separate your personal finances from your business finances, which can keep you out of a tight spot if a business loan goes south. It also helps your interest rates and insurance premiums if you have better business credit.

Separate Business and Personal

This can’t be said enough; to build up business credit for your startup, you need to separate your business from your personal life and credit. Otherwise, all those great on-time payments will just boost your own credit score rather than your business’s.

While it’s great on a personal level to have your business boosting your credit history, this can make it hard when you’re trying to separate them down the line and apply for business loans to grow your establishment. Once you’ve funded and established your business, you should work hard to separate it from your personal finances.

To do this, you should move from being a sole proprietor to setting up your business as a corporation or an LLC. Sole proprietors can’t get business loans and do everything from their personal credit, while these types of business entities stand on their own.

Definitely do this early in your business’s lifespan to start establishing credit early. This means that even if you don’t yet have employees, go for that entity status and set your business apart from your personal finances. 

Identify Yourself to the IRS

This is an incredibly important step not just for establishing business credit for your startup but also for running your business correctly in general. As soon as you are eligible, apply for an Employer Identification Number, or EIN, with the government.

This will not only help you pay your business’s taxes but will also identify you as a business entity with the government, which boosts your reliability and credibility.

It’s completely free to do, and eventually, you’ll be asked on a business loan to provide your EIN for the purposes of the loan. You might as well do this early so that you not only are shown as an established business but so that you have the information handy if you ever need it.

Better to be prepared and not need your EIN for a while than to be caught off guard and end up applying late or missing out on a loan because you didn’t have one.

Set Up a Credit Card and Bank Account

You should have a bank account and credit card for your startup that are specifically for business use as soon as it’s feasible. This will further help separate your business from your personal finances and build credit over time as you reliably pay off payments and show cash flow.

Use your credit card for purchasing anything from raw materials for your products to your website subscription fee, but make sure to keep it all on your business-related card or cards.

You should do the same with your business bank account. Don’t mix it with your personal finances or make personal transactions using that bank account; instead, transfer your wages or profits to your personal account and then pay. Make sure you keep enough in your business account to pay off your business card as well as paying for other corporate expenses.

Work with Vendors and Lenders That Report Your Payments

Paying on time or even early is a great idea to boost your credit, but this does nothing if the entities you’re working with don’t report those payments to credit bureaus to boost your credit score.

If your vendors let you pay on credit, which means paying after the goods are received ( similar to a small loan), you should take that option only if they will report your on-time payments to establishments like Experian, Equifax, and Dun & Bradstreet. 

These credit agencies, D&B especially, are where financial institutions will check to find your credit score. If your vendors or existing loans aren’t reporting to these agencies, your on-time payments are essentially moot. Of course, this doesn’t mean you should pay late or disregard these vendors; some business loans will ask for trade references if you don’t have credit, meaning that good relationships could still benefit you.

Establish and Update Contact Information

Having updated and specific contact information for your business will go a long way to proving your credibility, especially when you separate this from details like your personal phone number or your home address. Entities like the Better Business Bureau and online registries will require an address and phone number at the very least, and you don’t want these to be your personal information.

Having contact information that’s solely associated with your business will help you keep track of your business finances better and will give you better information to put on your business loans.

You should keep this information up to date not only with registries but also with credit bureaus so that they have accurate information on your business in the case that an institution tries to make a credit check.

Corporate Grants


Conclusion About Your Startup Credit

There are so many ways you can build up your business credit, but it boils down to being on time with your business payments and making sure those payments are going to your business’s credit and not your own.

Business credit is incredibly important when it comes to establishing yourself in the business world, from getting financing and loans to forming relationships with new vendors. Building business credit is almost like networking for your business’s financial reputation, and it can keep you from failing when the going gets tough.

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