If you’re thinking about operating a business in the United States, you’ll have more financial leverage to do so if you have strong business credit. Building credit improves your ability to borrow money, which means better opportunities to expand your business.
At Remitly, we’re committed to supporting you in your financial goals as you settle in a new country. This article tells you everything that you need to know about establishing creditworthiness as a small business owner or entrepreneur if you’re just starting out in the US.
Business credit basics
In the US, credit is a central aspect of financial health for individuals and businesses. It’s a key factor in accessing loans and can impact financial stability in various ways.
Understanding business credit will be a key factor in ensuring that your small business can succeed in the US.
What is business credit and why is it important?
In general, credit is the power to borrow money or assets in the present with the promise that you’ll pay back the cost later. Business credit is separate from your personal credit and financial history.
Business credit impacts your business’s ability to borrow money, and is primarily determined by your history of having borrowed and paid money back—making it a chicken-and-egg situation at times. Imagine you want to apply for a small business loan to invest in your start-up. Having strong business credit would make the process of borrowing money easier and less costly. But if your business is new and has no credit history, you’ll have fewer options for loans and will likely have to pay higher interest rates.
All entrepreneurs know the old adage, “You have to spend money to make money.” If you’re running a small business, there are a lot of overhead costs to get your business up and running. Having borrowing power available to your business will impact growth, equipment purchases, and other needs. That’s why building your business credit is essential for success.
The benefits of building business creditworthiness
Strong creditworthiness proves to other people that your business has a history of paying back loans completely and according to the predetermined terms. In other words, business creditworthiness is “proof” that your business can be trusted to pay money back.
The more creditworthy—or trustworthy—your business is, the more comfortable lenders will be when they work with your business. Here are the benefits of demonstrating business creditworthiness:
- Better access to loans
By having business credit, you’ll be more likely to receive loans in the first place. Some banks and lenders might not offer your business a loan without established business credit.
- Bigger loans available
Strong business credit is related to the amount of money banks will loan you. The better your credit, the bigger the loan.
- Lower borrowing costs
Banks lend money because they can charge interest on the loans. Your good business credit will equate to lower interest rates because banks will consider the loan less risky. Basically, they know they’ll get their money back. - Improved business relationships
Your business credit can be relevant to many situations beyond borrowing. Suppliers might check your business credit history to determine payment terms, and your business credit history could also come into play in rental contracts for commercial properties.
Having good business creditworthiness ultimately means increased financial flexibility and lower expenses for you as a business owner.
Steps to establishing business credit
If you’ve just moved to the US and are starting your own business, there are several ways you can start establishing your business credit.
Register your business with an EIN
The first step to establishing business credit is incorporating your business, which means establishing your business as a legal entity. The business incorporation process varies from state to state, so check with your local government for specifics.
Once your business is established, you’ll need to obtain an Employer Identification Number (EIN). This is a unique number assigned by the US Internal Revenue Service or IRS that will be used to manage your business’s finances. Applying for an EIN is a straightforward process that can be completed online, by phone or by mail.
Open a business bank account
Once you have an EIN for your business, you can open a business bank account in order to keep your business finances separate from your personal finances. Instead of opening this account with your legal name and social security number, the bank will use your business’s official name and the EIN.
Opening a business checking account is a great way to establish your business financially. In the US, there are plenty of banking options for businesses in both traditional brick-and-mortar banks and online banks. Many banks offer fee-free business checking accounts.
Apply for a business credit card
Getting a business credit card is a great way to easily build your business credit. Consider opening at least one credit card specifically for your business. This credit line should be completely separate from you and any other business owners.
Start making business purchases using the card and pay off your monthly credit card bill on time and completely. The credit card company will report your ability to pay off your monthly bill to business credit bureaus, which will establish your business credit.
Building and improving your business credit
Once your business’s credit is established, there are specific actions you can take to ensure that it is as strong as possible. If you’ve noticed that your business credit is not as strong as it could be, focusing on these actions can also help improve your credit.
Establish a business credit profile
A business credit profile is a full financial report of a business’s financial history. This includes—but is not limited to—the business’s credit history. It also takes into consideration payment behavior, financial transactions, business size, and industry risk.
A business credit profile is used to assess a business’s overall creditworthiness. You can think of a business credit profile as a credit score for a business. As such, your business credit profile will also have a rating, which depends on the model used. Here are a few popular credit bureaus and the range of their credit profile models:
- Dun & Bradstreet PAYDEX Score: 1 to 100
- Experian Business Credit Score: 1 to 100
- Equifax Business Credit Risk Score: 101 to 992
- FICO Small Business Scoring Service (SBSS) Score: 0 to 300
Maintain a good payment history
To develop good business credit or improve your existing business credit profile, focus on maintaining a good payment history:
- Pay all bills on time. Always make sure to complete your required payments within the billing cycle. If you’re able to, pay the full amount. If you cannot completely pay off a bill, ensure that you’re paying the minimum amount by the due date.
- Pay bills early when possible. Ideally, pay your bills when you can, even if it is before the due date. This will demonstrate your dependability in paying back loans to the credit bureaus.
- Keep credit utilization low. Your credit line refers to the total amount banks and lenders will contractually allow you to borrow. Credit bureaus typically suggest using about 30% of your total credit limit. For example, you open a business credit card with a $1,000 credit limit. Spending about $300 on that card—and paying it back on time—will contribute to a good payment history.
Monitor your business credit reports
Regularly check in with the major credit bureaus to monitor your credit profile. This will allow you to quickly identify any inconsistencies or potential issues. The two major bureaus for businesses in the US are Dun & Bradstreet and Experian. Here’s how to check in with them:
- Dun & Bradstreet
To further establish your business, you can apply for a Data Universal Numbering System (DUNS) number. This is a unique nine-digit identifier for your business issued by Dun & Bradstreet for the purposes of monitoring your business credit history. You can apply for a DUNS number online or by phone. This is free and takes a few weeks to process, unless you opt to pay a fee for the expedited eight-day service. Then, you can contact Dun & Bradstreet with your DUNS number to receive information about your business credit history report.
- Experian
Experian offers a range of business credit report tools, starting with a basic one-time business credit report. Explore the options on the Experian website to decide what is right for you.
Maintaining and leveraging good credit
Once you’ve established your business’s credit, it’s important to continue to monitor and build it to maintain a strong credit score. The tools mentioned above are helpful for tracking your score and engaging with credit bureaus.
Importance of on-time payments
When you constantly make timely payments on all of your loans and credit accounts, your business creditworthiness will increase. Keep a good record of all of your accounts and their billing cycles in order to stay up-to-date with your payments. If possible, setting up automatic payments can ensure that you’re always paying on time.
If you do not make a payment on time, your creditworthiness will be negatively affected.
Separating personal and business finances
Building your business credit is best done when your business is a completely separate entity—both legally and financially—from you as the business owner and any other persons associated with the business. This keeps your business credit score from impacting your personal credit score and vice versa. Here are some best practices for keeping your business independent:
- Register for an EIN so that your business has its own federal identification number.
- Use the EIN to open separate bank accounts and credit cards for your business.
- Educate yourself, your partners, and your employees about the distinction between business and personal expenses.
- Meticulously track business expenses, especially if multiple people within your business complete financial transactions on behalf of the company.
Keeping your business and personal expenses separate makes filing your taxes easier and more streamlined. Additionally, there are legal benefits, such as decreased liability and protection of personal assets.
Utilizing business credit for growth
Once you’ve established a healthy credit history, you can leverage this for growth. For example, you can use your business credit report to negotiate favorable terms with suppliers, such as longer payment periods or discounts for early payments. You can also use your business’s credit history to refinance any debt.
As you continue to borrow and pay back loans, your credit will improve, and you can leverage this to expand your company.
FAQs
What is the fastest way to build business credit?
The two fastest ways to build business credit are 1) opening a business credit card and 2) establishing relationships with vendors through “trade lines.” Both of these actions will communicate your business’s ability to pay off loans to business credit bureaus that establish your business creditworthiness.
How can LLC owners build credit?
Even if you are a small LLC or sole proprietor, you can follow the steps outlined in this article to establish creditworthiness for your business that is separate from your personal credit history. There are no requirements for business size associated with business credit.
My business is operational without business loans. Why should I build credit?
Even if you don’t need business loans currently, having a strong credit history for your business can help you prepare for unexpected financial situations or growth opportunities.
I registered my business, but they didn’t give me an EIN. What should I do?
Applying for an EIN is a separate process from registering your business. Business registration is regulated by each individual state. EIN assignment is the responsibility of the IRS, a federal agency regulated on a country-wide level. If your business needs an EIN, you can apply for one in minutes directly through the IRS website.