How to Build Commercial Credit for Your Business

Businesses of all sizes can benefit from establishing commercial credit, helping them to manage their finances and cash flow without being impacted by (or in turn impacting) the personal credit of their owner. If you’re tired of having to use your personal credit to free up cash, commercial credit may be the best way forward. 

Here’s what you should know about building commercial credit for the future of your company. 

What Is Commercial Credit?

Commercial credit is another name for “business credit,” and it’s tied to the credit and payment history of the business rather than the person running it. Even if you are a business of one, there are advantages to establishing commercial credit instead of continuing to use your consumer credit profile. 

For example, business credit cards are useful for managing the daily tasks of a business, including managing expense reports, purchasing supplies, and obtaining materials or inventory. 

In addition to having access to business-specific lines of credit, credit cards, vendor accounts, and other tradelines, your commercial credit accounts will generally not require a personal guarantee. Your personal credit score and ability to repay isn’t considered when applying for commercial credit using your business credit history. 

How to Build Commercial Credit

Now that you know how useful commercial credit can be, you’ll likely want to get some quickly. 

Unfortunately, it can be difficult for a business owner to go from only having a personal credit profile to signing up for high-limit commercial credit accounts or business credit card accounts. 

It’s not impossible, however, provided the company uses these established methods of building commercial credit. 

1. Set Up Your Business Correctly

If you haven’t done the paperwork to establish your company yet, you can put yourself at an advantage from day one by forming the right type of entity. Usually, for small businesses, this is an S-corporation or LLC that is taxed as an S-Corp. 

While many companies start out as a sole proprietorship, this ties credit to your personal profile and makes you (and not your company) liable for credit behaviors. 

If your company is brand new, start with the right business structure now, even if it adds some expense. If you have already been in business awhile, you should consider starting the process of incorporating to make it easier down the road. 

Be sure to make the investment in a unique business name that isn’t already registered in your state, as well as an address and phone number that can be used for all official business communications. Set up a new address and phone specifically for business; don’t use your existing personal contact info. 

2. Get an EIN and DUNS Number

You’ll use two numbers often when conducting business and opening a commercial credit accounts: your Employer Identification Number (EIN) and DUNS Number. An EIN is used by the IRS for tax tracking and filing purposes. 

You can apply for this number at no charge through the IRS official website. Registration takes just minutes, and you’ll get your new EIN right away.

Applying for a company DUNS number, the nine-digit identifier provided by Dun & Bradstreet, will take a little longer. You can apply for free on their website, but it can take up to 30 days to get confirmation. 

This number will be used to create a business credit and payment file that can be referenced by creditors, vendors, and international business partners to see how well you handle credit. It’s used to create a PAYDEX score, which is like a FICO® score, but for businesses. 

It is a key indicator that lenders use to determine whether be approved for access to small business credit cards and other commercial credit accounts. 

(Tip: You’ll need the EIN to apply for the DUNS, so handle the EIN task first.)

3. Create a Separate Business Bank Account

If you’ve been paying bills and accepting client payments through a personal checking account, now is the time to upgrade. Even if a personal account has been only used for business, the classification of a personal account is inadequate for building a business credit history. 

Ask your current bank or credit union how you can make the switch. 

4. Consider a Business Credit Builder Loan

With your bank and tax information squared away, it’s time to build that business credit. One way to do this is with a CreditStrong business loan. Applications for eligible businesses are approved in minutes, after which your company will get a bank loan with the funds set aside in a separate, secured business account. 

These funds are locked until you pay off the loan. The principal portion of your monthly loan payments will build savings for your business, and if you select one of CreditStrong’s 0% interest plans, 100% of your monthly payments will build savings for your business.

After paying off the loan, you’ll get access to the funds, minus interest and fees. You can pay your CreditStrong Business loan according to the terms of the 24-month installment plan you select or pay it off early with no penalty. 

Each month your payment history gets reported to major business credit bureaus. Consistent, on-time monthly payments help create the commercial credit profile you need for future credit opportunities, including business credit cards, traditional bank loans, and versatile credit lines. 

As of the writing of this article, CreditStrong’s business credit builder loan is the only one of its kind on the market. It’s received high reviews from customers, other companies in the business credit industry, and financial bloggers alike.

This could be an excellent investment in building your company’s credit profile. See plans and pricing here.

5. Get Net 30 Vendor Accounts

One alternative to a business credit card is vendor credit. If your company resells merchandise, your supplying vendor may already have an option to apply for vendor credit. 

This may come in the form of 30-day net terms for your invoice. By applying for this perk and paying your credit on time each month, it’s possible to gain access to higher credit limits and eventually longer payment terms. 

Many net 30 vendors do report to the credit bureaus, so this is a double-win for you! 

6. Apply for Business Credit Cards and Loans

While it doesn’t usually make sense to apply for business credit right after you start your company, within 12-24 months of on-time payments and a good record of cash flow and liquidity, you may be able to apply for some business credit cards from select issuers. Length of time in business and the required payment history will vary by provider, but getting started today will start the clock to the minimum requirements of whichever provider you select.

The easiest to apply for include retail or big-box credit accounts. Home Depot, for example, has a business credit card that is relatively straightforward to get accepted for, assuming your business meets specific criteria and has a need for a Home Depot card. 

Places you already shop for business purposes may be the best place to deploy your newly-built commercial credit profile; ask their customer service department about business card options. 

Other options included the business versions of cards you may already have in your wallet for personal use. Check the terms and conditions to ensure that the cards you apply for are a good fit, and avoid applying for too many at a time as this can negatively affect your business credit score.  

The commercial credit market is full of options, so don’t feel pressure to commit to one right away. 

7. Always Pay On Time

It should go without saying, but on-time payments help you get a handle on your cash situation and also build your credit over time. Even one late payment can cause a lender to look negatively at your overall credit risk. 

Do what you can to keep your payment terms with vendors, business credit card issuers, utility companies, and landlords. 

The PAYDEX score mentioned above is 100% based on your payment history, and it’s also what many lenders use to determine creditworthiness. To keep your score going in the right direction, cardholders should be diligent about on-time payments, especially to business credit card issuers. 

8. Monitor Your Business Credit

Even when you’re first starting out in your journey to build business credit, checking in is very important. You may not have much activity to track yet, but mistakes and fraud can still happen. It’s also more likely to see discrepancies between bureaus with business credit than you may be used to seeing on your personal credit profile, since not all vendors report to all bureaus.

If you notice mistakes or fraud, they can cause issues for your credit history. It could undo any of the headway you’ve made in establishing yourself as a reliable borrower. You’ll need to work with the bureau to have these items removed or rectified.

Checking your business credit reports not only helps alert you to errors, irresponsible employee activity, or criminal fraud, but it can also help familiarize you with how credit works and what information lenders will access when making a credit decision.

Credit history is just one piece of the business credit card approval puzzle, including things like commercial debt, annual revenue, assets, credit spreads, corporate bonds, and portfolio holdings. You’ll want to be sure that this aspect of your financial health is handled. 

What Is the Best Commercial Credit Rating?

While the PAYDEX rating has already been mentioned, it’s not the only metric banks use to make a credit decision. Dun & Bradstreet’s score relies on payment history to give you a score of 0-100. It’s used by lenders, suppliers, vendors, and landlords.

Experian also has a commercial credit score, ranging from 1-100. This Intelliscore Plus score tries to give lenders the likelihood that you’ll pay late or default on accounts within the next year. Its calculation methodology isn’t widely publicized, but you can assume that it bases its data on payment history. 

Finally, FICO doesn’t just work with consumers. It has a business version called LiquidCredit Small Business Scoring Service (SBSS), and it goes from 0-300. 

It’s most utilized by financial institutions and lenders in the SBA loan program. It tracks how likely you are to pay on time based on business debt and account activity. 

There are other commercial credit scoring reporting and scoring systems besides these three. You can read about the others here.

Bottom Line

Building your commercial credit rating should be a high priority to help your business access tools that can help manage your finances and cash flow. It can take time to establish a solid business credit score, so starting now is always beneficial. 

After months or even a year of on-time payments under your new business identity, doors of opportunity will open up. This may include an issuer accepting you for a business credit card, being able to access equipment loans or leases, or being able to negotiate improved payment terms with vendors and suppliers. Regardless of your specific need, a strong commercial credit profile is an asset to any business.

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