How to build business credit for your startup

You've spent hours analyzing your brand logo. You've taught yourself marketing, and you've drafted business and product development plans. But in all these details of launching a new business, you haven’t considered the credit foundation you need to get your business off the ground. 

Business credit often takes the backseat in startups. It’s an essential aspect that’s not always prioritized, especially during the early stages. Yet, it’s precisely in these initial stages that building business credit is truly pivotal.

Building an excellent business credit history is much more than just a strategy for acquiring loans at favorable interest rates. It's the driving force behind any business's growth, setting up a strong base for your company and its financial success. Entrepreneurs and startups need to know how to build business credit and understand how it can positively impact their companies.

Why is business credit important for startups?

Business credit plays a crucial role in the life cycle of startups. Establishing a strong business credit rating from the beginning can be the “critical inch” in propelling your enterprise toward success. Most small businesses have initial operating expenses between $50,000 and $500,000. Securing funding is an essential part of early growth.

Business credit can support cash flow by giving access to capital for everything from operations to expansion. With strong business credit scores, your company can more easily secure business loans or other types of financing and negotiate better credit lines and terms from vendors. This can help fuel your growth and help operations run more smoothly — especially in periods of tight cash flow.

Vendors, suppliers, or potential customers may also review your business credit history to evaluate your company’s financial health and reliability. This opens doors to potential partnerships and collaborations.

6 steps to building business credit

Building business credit doesn’t happen overnight. It requires measured, deliberate, and consistent effort. Here are six steps to help your business establish strong business credit.

Establish a separate legal entity for your business

The first step in building business credit is to ensure your business is a separate legal entity. It could involve:

• Incorporating your business
• Forming a limited liability company (LLC)
• Establishing a partnership

This move separates your business as legally distinct from you as an individual, making it easier to establish business credit. It also establishes boundaries between your financial affairs and your business, protecting personal assets from business debts, lawsuits, or losses.

Open a business bank account

Any business owner should open a dedicated bank account that is separate from your personal finances. For one, it helps authenticate your business as a separate legal entity. It also:

• Enhances financial transparency
• Simplifies tax filing
• Contributes to a strong business finance profile

Your business bank account sets the stage for building a robust financial foundation that can support your growth and success in the long run.

Establish trade lines with vendors and suppliers

Building strong trade lines with your vendors and suppliers is another critical step in building your business’s credit score. 

If the vendors you work with don’t report payment activities to credit bureaus, encourage them to do so or seek out suppliers who do. 

This can contribute significantly to your business credit score and help you build stronger credit over time.

Additionally, nurturing trade lines with vendors helps build trust, improves  financial relationships, and positions your business for sustained growth and success in the competitive marketplace.

Pay bills and invoices on time to build a positive payment history

Making payments on time isn’t just a financial chore; it’s a powerful indicator of your financial responsibility and reliability. 

Thorough accounting and proactive accounts payable activity is critical. It not only helps you understand how to categorize expenses but also allows you to meet your obligations on time so your credit accounts stay in good standing.

Monitor and review your business credit reports

A clean credit report is imperative for a strong business credit score. But its importance goes beyond numerical value. It’s a reflection of your financial integrity and can impact everything from securing loans to fostering trust among stakeholders. 

Make sure to regularly check your business credit reports to spot any inaccuracies or fraudulent activities. Immediately report any discrepancies to the three major credit bureaus for correction.

Consider secured business credit cards

For businesses in their early stages, opting for a secured corporate credit card backed by a deposit account is one of the smartest financial strategies you can tap into. 

These cards provide a solid starting point for businesses aiming to build a credit history from scratch, a crucial aspect for future financing and establishing financial credibility. 

Your deposit determines the credit limit, which offers both financial security and predictability, ideal for minimizing risk during the vulnerable early phases of a business. 

Likewise, the predetermined credit limit simplifies budgeting, while consistent, on-time payments on these cards contribute to improving your business's credit score, potentially paving the way for a transition to unsecured credit as your business matures.

Manage business credit cards with real-time financial reporting 

Real-time financial reporting plays an important role in building business credit and can help set your company up for future success. Knowing when to expand or secure more business financing doesn’t have to be guesswork. 

With real-time data, you can make knowledgeable and informed decisions that will help your business stay financially healthy and maintain a solid payment history — even in the face of economic downturns.

Keeping a positive cash flow with the aid of real-time financial reporting helps you manage corporate credit accounts and pay bills and invoices on time. Accurate financial reports also enhance transparency and trust among partners and stakeholders, which can help you secure financial flexibility to facilitate steady, measured growth. Building business credit is vital to any company's progression and enlargement process.

Developing a robust business credit profile creates a financial identity that fosters potential relationships with lenders, vendors, and suppliers. 

Pairing this with the power of real-time financial reporting ensures the health and transparency of your business’s finances, leading to enhanced reputation and trust–and a healthier bottom line.

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