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Imagine being able to buy necessary equipment, stock inventory, or hire new talent—all without dipping into your personal bank account or relying on high-interest loans. Business credit opens doors to these possibilities, offering startups a lifeline to secure financing, build credibility, and scale faster.
But here’s the catch: many entrepreneurs don’t know how to get business credit, or worse, they confuse it with personal credit.
What if there was a way to access lines of credit even as a new business? What if building credit could become a strategic part of your growth?
In this guide, we’ll explore how to get business credit for a startup and why it’s important for your startup’s long-term success.
What Is Business Credit?
Business credit is a company's ability to borrow money or access financial products, such as loans, lines of credit, or credit cards, based on its creditworthiness.
Unlike personal credit, which evaluates an individual’s financial responsibility, business credit focuses on the company’s history of repaying debts, financial stability, and how well it manages its finances. A company builds business credit by borrowing funds under the business name and paying those obligations on time.
All types of businesses need business credit, from small startups to large corporations. Startups need business credit to access the necessary capital to grow without relying on personal assets.
Business Credit vs. Personal Credit
While business credit and personal credit may seem similar, they serve different purposes and operate under different rules. Here are the main differences between business credit and personal credit:
Credit Score
Personal credit scores are based on the individual’s financial history and are reported by the major consumer credit bureaus, including Equifax, Experian, and TransUnion. These scores range from 300 to 850.
Business credit scores, on the other hand, are tied to the business itself and are reported by commercial credit agencies like Dun & Bradstreet, Experian Business, and Equifax Business. Business credit scores often range from 0 to 100, with higher scores indicating better creditworthiness.
Credit Reporting
Personal credit is influenced by individual debt, credit utilization, and personal loans. Business credit reporting focuses on the company's financial behavior, including how it manages trade lines, business loans, and credit from suppliers.
Business credit agencies collect information on how the business handles debt and payments to evaluate the company’s reliability.
Purpose of Credit
Personal credit is used for individual financial activities like obtaining personal loans, mortgages, and credit cards. Business credit is used for securing financing, opening trade lines, and establishing credibility with vendors, suppliers, and financial institutions.
Why Should You Keep Business and Personal Credit Separate?
It’s important to keep your business and personal credit separate to protect both your personal finances and your company’s future. Doing this safeguards your personal assets, like your home or savings, while allowing your business to build its financial reputation.
Also, separating credit makes it easier to manage finances, gives legal protection, and helps your business grow without putting your personal finances at risk. Here's why maintaining this separation is so important.
Why Business Credit is Important for Startups
Establishing good business credit early on can make the difference between struggling to secure financing and being able to expand operations smoothly. Here are several reasons why business credit is important for startups:
Access to Financing
Lenders and financial institutions rely on business credit scores to assess the risk of lending money to your startup. A solid credit score can unlock better terms for loans, lines of credit, and even business credit cards.
This can provide the much-needed capital to invest in equipment, inventory, or marketing efforts, helping your startup grow faster.
Improves Business Reputation
A strong business credit score signals to potential vendors, suppliers, and partners that your business is financially responsible and reliable. This can lead to better terms when negotiating contracts, such as longer payment periods, lower interest rates, or even discounts on bulk purchases.
Suppliers may also be more willing to extend credit to businesses with strong credit scores, which can improve cash flow. This reputation is important for startups as it helps establish trust and credibility in the market.
Separating Personal Liability from Business Risks
If you rely on personal credit to fund your startup, your personal assets—such as your home or savings—could be at risk if the business encounters financial difficulties. By establishing business credit, you create a clear separation between personal and business liabilities.
This ensures any debts or legal issues the business faces won’t impact your personal credit score or financial security.
Increases Chances of Winning Contracts
Many larger organizations and government contracts require businesses to have an established credit profile. Startups with strong business credit are more likely to be considered for lucrative contracts, as they are seen as less risky.
Good credit may also open doors to partnerships with other companies, leading to greater visibility and more business opportunities.
7 Steps for Getting Business Credit for a Startup
Follow these steps to establish strong business credit from the outset.
Step 1: Establish a Legal Business Entity
This process not only legitimizes your business in the eyes of the law but also creates a distinct separation between your personal and business finances.
- Select a business structure that suits your startup's needs. Common options include sole proprietorship, Limited Liability Company (LLC), and corporation.
- Consult with a legal or financial advisor to determine which structure best aligns with your business goals, funding needs, and risk tolerance.
- Register your business name. This process varies by state and often requires filing with the state (if you choose an LLC or corporation) and DBA registration (if you want to operate under a name different from your legal business name).
- Obtain necessary licenses and permits, such as business licenses, professional licenses, and health and safety permits.
Step 2: Obtain a Federal Employer Identification Number (EIN)
The EIN is a unique identifier for your business, much like a Social Security number for individuals.
An EIN is mandatory if your business operates as a corporation or partnership. Even sole proprietors may benefit from acquiring one, especially if they plan to hire employees or open a business bank account.
Also, an EIN is necessary for various tax purposes, including payroll taxes, business tax returns, and other regulatory filings. It simplifies the tax process, ensuring compliance with federal regulations.
Here’s how to obtain an EIN:
- Ensure your business is located in the United States or its territories. You must also have a valid Taxpayer Identification Number (such as a Social Security number) to apply.
- Complete the EIN application online through the Internal Revenue Service (IRS) website.
- After completing the application, submit it online. The IRS will process your application immediately, and you will receive your EIN upon completion. If you apply by fax or mail, processing may take longer, so it’s advisable to apply online for faster results.
- Once you receive your EIN, store it securely. You’ll need this number for various business transactions, including opening a bank account, applying for loans, and filing taxes.
Step 3: Open a Business Bank Account
A dedicated business account helps separate your personal and business finances, thereby enhancing your professionalism and credibility. Here’s how to open a business bank account:
- Research banks and credit unions to find one that best suits your business needs. Consider factors like fees, account features, customer service, and loan and credit services.
- Gather all necessary documents to facilitate the account-opening process. Common requirements include business registration documents, EIN, operating agreement or bylaws, and personal identification such as a driver’s license or passport, for all owners and authorized signers on the account.
- Schedule an appointment or walk into the chosen bank or credit union to open your account. During your visit, discuss your needs, complete the application, and make an initial deposit.
- To build your business credit effectively, use your business bank account exclusively for business transactions: deposit all business income, pay business expenses, and keep personal and business finances separate.
Step 4: Register with Business Credit Bureaus
This process not only helps your business gain credibility but also enables credit bureaus to monitor your financial activities. Here’s how to register with business credit bureaus:
- Familiarize yourself with the three main business credit bureaus: Dun & Bradstreet (D&B), Experian Business, and Equifax Business.
- To register with Dun & Bradstreet, you need to obtain a D-U-N-S Number, which is a unique identifier for your business. Simply go to the D&B website and find the D-U-N-S Number registration section. Fill out the application form with your business details, including your legal business name, address, and contact information. Submit your application after reviewing it for accuracy.
- Once you have your D-U-N-S Number, register with Experian and Equifax.
- Build your business credit profile by working with suppliers and vendors that report to credit bureaus and using your D-U-N-S number whenever you apply for credit or establish new vendor relationships.
Step 5: Get a Business Credit Card
Acquiring a business credit card is an important step in building your startup's credit profile. Here’s how to obtain a business credit card and use it to build your business credit:
- Research various business credit card options. Consider interest rates, rewards and benefits, annual fees, and introductory offers.
- Understand the requirements such as legal business name, EIN, business structure information, annual revenue, and personal guarantee (many business credit cards require a personal guarantee, meaning you’ll be liable for the debt if the business fails to repay it).
- Gather all necessary documentation and information when you’re ready to apply. Provide the contact information, business financials, and credit history.
- Submit your application online or in person.
Step 6: Pay Bills On Time
Late payments can hurt your credit score, thereby making it more challenging to secure financing or favorable credit terms in the future. Paying your bills on time enhances your reputation with suppliers and vendors.
Many vendors report payment history to credit bureaus, and a positive track record can lead to better terms and conditions, such as higher credit limits or extended payment periods. Here are tips for ensuring timely payments:
- Create a calendar or spreadsheet to track payment due dates for all your bills.
- Set up automatic payments for recurring bills, such as rent, utilities, and loan repayments, to eliminate the risk of forgetting due dates.
- Identify which bills are most important to your business operations and prioritize them. Ensure these are paid on time to maintain essential services and support your operations.
- Regularly review your cash flow to anticipate any potential shortfalls. Understanding your financial position will help you manage payments effectively and avoid late fees.
- If you can't make a payment on time, contact your creditor immediately. Many are willing to work with you to establish a revised payment plan or offer temporary relief options.
Step 7: Monitor Your Business Credit Score Regularly
The tips below can help you monitor your business credit score:
- Familiarize yourself with the scoring models major credit reporting agencies (such as Dun & Bradstreet, Experian, and Equifax) use.
- Regularly obtain your business credit reports to understand your credit status. You can request your credit reports directly from the major credit bureaus.
- When you receive your business credit report, scrutinize it for inaccuracies. Common errors may include incorrect payment histories, outdated information, or inaccuracies regarding your business's credit accounts. If you find discrepancies, contact the credit bureau to dispute the errors and provide supporting documentation.
- Many credit monitoring services allow you to set up alerts for changes to your business credit profile. These alerts can notify you of new accounts opened in your name, changes in payment history, or alterations to your credit score.
What is the Fastest Way to Build Business Credit?
Startups that want to secure financing and establish a solid financial foundation must understand how to build business credit quickly. Here are some strategies to help with this process:
Use Net-30 Vendor Accounts
Establishing trade lines with vendors that offer net-30 payment terms is one of the quickest ways to build business credit. These vendors allow you to purchase goods or services on credit, with payment due in 30 days.
When you make timely payments, these vendors report your payment history to business credit bureaus, which can help improve your credit score.
Apply for a Secured Business Credit Card
Secured business credit cards require a cash deposit that acts as your credit limit. This can be a good starting point for startups with limited credit history.
By using the card for business expenses and paying off the balance in full each month, you demonstrate responsible credit use. Secured cards also typically report to the major business credit bureaus, which helps establish and build your credit profile.
Pay Early and Consistently
Consistent on-time payments show lenders and credit bureaus that you are reliable and financially responsible. In addition, some creditors offer discounts for early payment, providing both credit-building benefits and potential cost savings.
Keep Debt-to-Credit Ratio Low
Your debt-to-credit ratio, which is the total debt you have compared to your total available credit, must be below 30%. This means if you have a total credit limit of $10,000, you should keep your outstanding debt below $3,000.
Managing your credit utilization effectively helps maintain a healthy score and improves your chances of getting additional credit.
Work with Credit-Building Services
These services can guide you through building business credit for your startup. They may offer tools and resources to help monitor your credit score and provide tips on improving your financial practices.
Wrapping Up
Getting business credit is an important step for startups that want to build a strong financial foundation and achieve sustainable growth.
By understanding what business credit is and how it works, entrepreneurs can separate their personal and business finances, thereby reducing personal liability while enhancing their business's credibility.
As discussed in this guide, building business credit involves several steps, including forming a legal business entity, obtaining an EIN, and establishing trade lines with vendors.
By actively managing and monitoring your business credit, you can open doors to various financing options, secure better terms, and position yourself for long-term success.
In addition, the fastest ways to build business credit—such as using net-30 vendor accounts and maintaining a low debt-to-credit ratio—can expedite the process, thereby allowing you to access vital resources more quickly.
FAQs
How do I get business credit if I have none?
To build business credit from scratch, you can:
- Use personal credit
- Establish a business bank account
- Obtain a business credit card
- Get a business loan
- Use trade credit
- Report business credit
- Consider a credit builder
How long does it take to get business credit?
Building business credit takes time. There's no exact timeline, as it depends on several factors, including your personal credit history, the age of your business, your payment history, and the types of credit you use. Generally, it can take several months to a few years to build a solid business credit history.
Can I get business credit with bad personal credit?
Yes, you can get business credit with bad personal credit. However, it may be more challenging and require additional steps:
- Start small
- Build a positive business credit history
- Use personal guarantees
- Consider alternative lenders
- Provide collateral
