Business Expansion

5 Tips Startup Owners Can Use to Build Business Credit

Last updated on March 21, 2021

Jacques Famy Jr

Starting a business is a scary, unpredictable, and often unforgiving process, particularly when it comes to finances. Establishing adequate business credit is essential for any new startup. Without a good business credit history in place, it will be challenging for anyone to continue growing and expanding their enterprise.

From simply establishing your startup as a recognized business entity to working with an alternative business lending source to secure a line of credit, there are a variety of effective ways to build and improve your business credit, enabling you to become eligible for a broader range of small business loan products.

Establishing Business Credit Is Essential

Before you can start taking actiopn to improve your startup business credit, it’s crucial to understand why business credit is so important in the first place.

So, let’s start with the basics of business credit:

What Is Business Credit?

Your business credit history will work essentially in the exact same manner as personal credit scores. You build your history based on a variety of financial factors. Credit history establishes your reliability as a borrower if you ever need a business loan or other financing.

The most significant difference between personal and business credit is that personal history is tied to your social security number, while business credit connects back to an employer identification number or EIN. For this reason, it’s essential to register your startup business and obtain an EIN.

Why Does It Matter?

Establishing adequate credit history for your business is crucial to continue growing and expanding your business. Just like personal credit, business credit history helps financial institutions such as banks and credit unions or alternative lending facilities figure out whether or not they can reliably loan money to your business.

There comes a time when almost every business needs financial assistance. Whether it’s to help fund payroll or to complete new construction, the vast majority of startup businesses can’t function without some type of startup business loan product. Your business credit history indicates your business’s creditworthiness and will help when your startup inevitably needs any of the following products or services:

  • Business bank accountsPreview (opens in a new tab)
  • Business credit cards
  • Business lines of credit
  • Equipment loans
  • Supplier payments
  • Payroll support
  • And more

Banks and other lending outlets will look at various elements related to your business history and financial health before determining your eligibility for certain loan options. It’s challenging to secure funding from conventional lenders with a poor credit history, but there are still several loan options for business owners with bad credit available in the marketplace.

How Does Business Credit Work?

There are four main business credit reporting agencies that all business owners should be aware of when first starting. FICO, Experian, Equifax, and Dun & Bradstreet (D&B) use the EIN connected to each of your business dealings to collect information from vendors and creditors. These agencies also consider various public records and legal filings when determining your business credit score.

Unlike personal credit scores, which are evaluated on a standardized scale, business credit scores will vary by agency, as each credit bureau uses a unique method to calculate your business credit score.

5 Surefire Tips to Boost Your Startup Business Credit

Establishing a solid business credit score is crucial in case you ever need a loan, line of credit, or other financial assistance as you continue to grow your startup business. Although many different factors go into determining your business credit score, there are several ways that you can attempt to improve your business credit by yourself.

1. Review Personal Credit History

One of the first things every business owner must do when starting a new business is to begin by evaluating their personal credit history and financials. Although personal credit history isn’t considered in all types of business loan products, there is the potential for your bank or other lending institution to double-check your personal credit history to determine your business’s creditworthiness.

The evaluating lending outlet may consider certain aspects of your personal credit history when determining your business’s eligibility for a loan, credit card, or other financial assistance. Outstanding loans, unpaid credit card debts, and a history of bankruptcies can all impact your eligibility for startup business loan products.

Even if your personal credit history isn’t so great, there are ways of overcoming the challenges of poor credit to put your startup business in a better position to receive financial assistance. Pay off debts and wrap up any loose ends regarding credit cards or legal issues to leave your new company in a comfortable place if you ever need a loan or line of credit.

2. Register Your Business

Next, it’s essential to ensure that your startup business is registered and established with the correct entities. Obtaining an employer identification number, often seen written as EIN, is the number one way to start growing your business credit.

Although an EIN is essential in most cases for businesses to establish credit, there are exceptions, such as S-corps and sole proprietorships, that do not require an EIN. The Internal Revenue Service (IRS) offers a list of qualifications to determine if your business entity requires an EIN to operate. According to the IRS, any businesses meeting the following criteria must obtain an EIN:

  • You are a partnership, trust, non-profit organization, or corporation
  • Your business has employees
  • You withhold income taxes for an undocumented employee
  • You employ independent contractors requiring form 1099
  • You have filed or plan on filing tax returns for the following:
    • Alcohol
    • Tobacco
    • Firearms
    • Employment
    • Excise taxes

An EIN is a unique, 9-digit Federal Taxpayer Identification Number (TIN) issued by the IRS that establishes a history of your business activity. Startups should also register with the four primary credit bureaus before opening up shop.

Credit bureaus utilize the EIN connected to your business to collect information that aids in determining your current business credit score and, thus, your business’s creditworthiness. As a business owner, you’ll likely have to input your EIN information for insurance policies, payroll purposes, event registrations, licensing, establishing wholesale supplier accounts, and so much more, making it crucial to have a positive business credit score associated with your EIN.

You can learn more about the importance of obtaining an EIN for your startup from the Small Business Administration’s informative article here. Then, apply for an EIN from the IRS for your startup business via this secure online portal.

3. Apply for a Business Line of Credit

Once you’ve established your new business with each credit bureau and received an EIN from the Internal Revenue Service, the next step is to apply for a business line of credit. Credit lines are an excellent choice for budding small businesses and entrepreneurs strapped up in stressful financial situations and needing access to fast cash. Applying for a business line of credit or business credit cards is a great way to get your business credit score off the ground.

Business lines of credit are flexible solutions that act similarly to a standard credit card, making this a popular lending option that business owners can grasp quickly. Business lines of credit are an excellent option for startups since you only pay interest on the actual funds drawn, meaning you’ll never have to accept and owe more money than your business can handle at the moment. Plus, business credit lines come with a fixed credit limit, restricting the amount of capital you can access at one time.

Startups typically utilize business lines of credit for unforeseen financial burdens, larger investments or one-off purchases, and consistent cash flow issues. The money can also be used as working capital for your startup business.

4. Keep Up With Payments

Once you’ve secured a business line of credit with your chosen financial institution, it’s crucial to keep up with your payments or even pay off amounts owed earlier than expected in order to boost your business credit score.

Take care of outstanding invoices as soon as they cross your desk and prioritize making credit card payments on time, ensuring your business credit score stays high, and you remain in good standing with startup business lenders.

5. Go for Growth

Another vital element of improving and keeping your business credit score high is actually quite obvious. The more your business grows and successfully reaches goals, the higher your business credit score will go, as long as you stay in good standing with the IRS, credit card companies, loan officers, and other important entities. Additionally, your chances of qualifying for startup loans and establishing better business credit increase the longer your company stays in business.

Acquiring more assets under management or a more extensive client portfolio will put your startup business on the path towards an excellent business credit score. Building your business (and your business credit score) is no easy feat, but it is ultimately one of the most rewarding experiences for a blossoming entrepreneur or business owner.

The first few years in business are never easy for a startup financially. Luckily, business owners are not alone. There is an abundance of alternative lending options available to keep your business afloat as you grow and continue to get off the ground.

Startup Business Loans: Borrowing From a Trusted Lender

The years immediately following a startup’s inception can be a struggle financially for many small business owners. It can take as many as four years or more for a startup business to become profitable in many cases. That’s quite a long time to go without revenue or even a meager salary for the vast majority of startup founders.

Financial stress can make or break a startup business, putting owners under immense pressure to obtain adequate funding from alternative outlets to stay afloat.  Sometimes, seeking out additional financing options from a reliable source is the only way to provide your startup with the resources needed to propel itself forward.

Unfortunately, dealing with conventional lending outlets like banks and credit unions can be challenging for startups with limited business credit history. Still, there are business loan alternatives like AdvancePoint Capital that provide a wide range of financing options for startups in need of working capital.

Whether you need an equipment loan to purchase machinery for a manufacturing startup or require regular access to funds via a business line of credit, an alternative lending institution can set your startup on the path to success with valuable financing solutions for startups and small businesses.

Get the funding your startup business needs to keep going and growing its business credit with alternative loan options from AdvancePoint Capital. Talk to an expert at AdvancePoint Capital about startup business loans today to learn more about the options available for your budding startup business. We can help you continue improving your startup business credit, opening up an abundance of doors for your business in the future.

* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.