How to Build Business Credit
Maintaining a separate credit profile for your business can be significantly advantageous as it establishes an independent credit history from your personal one, potentially leading to greater credit capacity. Generally, business credit facilities offer more generous credit limits and more favorable terms compared to personal credit options. One can establish business credit without the necessity of a personal credit evaluation or the need for a personal guarantee if it’s managed correctly. Moreover, obtaining business credit is straightforward and isn’t influenced by your personal credit standing since business credit activities are not recorded on personal credit reports. Any business that possesses an Employer Identification Number (EIN) and is legally recognized has the eligibility to acquire business credit.
To develop an initial credit profile for your business, you can follow these three steps:
The first step to enhance your business’s eligibility for credit is to meticulously adhere to the criteria set by business credit providers when setting up your company’s initial credit profile. Even financially robust businesses can face loan application rejections due to concerns about fraudulent activities. Lenders mitigate this risk by thoroughly vetting the organizational and application details against multiple databases. They verify that the business and its owners are registered in the state’s public records via the Secretary of State, and cross-reference business licenses with the information provided in the loan application. Additionally, checks are carried out through databases such as LexisNexis, Dun & Bradstreet, Experian, The Small Business Financial Exchange, Equifax, and ChexSystems. Lenders’ primary objective is to confirm that the business owners are likely to repay any borrowed funds promptly and in full. They evaluate elements like cash flow, collateral, and credit history to gauge a business’s likelihood of securing financing. The greater the number of “Cs” a company demonstrates — cash flow, collateral, credit — the broader the financial opportunities available to it.
