Build Business Credit

$2695 for a fifteen-year-old shelf company.

Establishing Business Credit

Establishing and maintaining good business credit is important to run a successful business, as it aids in maximizing cash flow and minimizing the possibility of being flagged as high risk. Please note that it can take three to six months to build business credit.

Business credit is linked to a company’s EIN (Employer Identification Number) and enables it to qualify for business loans, open bank accounts and credit lines, and obtain credit cards and vehicle financing. A company cannot open a bank account or apply for business credit without an EIN. When applying for business credit, be sure to leave the SSN blank. This will prevent your personal credit from being negatively impacted in the event of a default on a business credit account.

Although financial institutions will evaluate a company for business credit based upon the individuals associated with its public record and their ability to pay outstanding loans and lines of credit, there are many other factors that may affect a bank’s decision to extend business credit. Some of these, such as rent district, per capita income, and demographic makeup of the area surrounding the company’s office location, may seem discriminatory, and can negatively impact the ability to obtain business credit. Therefore, to increase your chance of being granted business credit, avoid the use of PO Boxes, UPS stores, and mail drops for the company address, as these may be considered high risk. Residential addresses can also negatively affect building business credit. Instead, opt for a “brick and mortar” company address.

Other factors financial institutions consider when evaluating a company for business credit are strictly business-related. Examples of these are listed below.

  • Age of the company
  • Type of industry & number of locations
  • State in which the company is filed
  • Annual revenues & revenue growth
  • Good standing with the Secretary of State
  • Social media presence & online activity
  • Website, including policies and listing of principals, updated regularly
  • References, testimonials, and entity bio
  • Press releases, advertisements, directory listings
  • Registered with 411 information
  • Insurance
  • Business licenses, copyrights, & DBAs
  • Complaints (or lack thereof) & BBB rating
  • Liens filed, UCC filings as creditor or debtor, or lawsuits

In addition, keeping your business legitimate and compliant in all areas will maximize your likelihood of obtaining business credit. Focus on completing these important steps before applying for business credit:

File with the Secretary of State Keep impeccable accounting and documentation. This will make it easier for you to get approvals from big companies and banks, and with higher business credit limits.
Obtain the proper business licenses and permits, as well as any other compliance requirements
Establish a business phone number, a toll-free number, and a fax number
Register with 411 information services
Obtain a utility bill or lease in the company’s name and make timely payments

On the business credit application, make sure the business name is exactly as it appears on the Articles of Incorporation, Secretary of State registries, business licenses, and online. Be meticulous when completing the application because a misspelled company name can cause your business credit application to be declined. Proofread for typographical errors. Be sure your company’s website contains a domain name and bio, and lists its address, phone number(s), fax number, e-mail address, and name(s) of the principal(s) because financial institutions will look at a business’s credit profile when evaluating an application for business credit. An incomplete credit profile may result in your company receiving a lower business credit limit than desired.

Here are other recommendations to consider which can increase your chances of obtaining business credit:

  • Open a bank account in the company name with an initial deposit of at least $1,000. Lenders often consider deposit account balances when evaluating business credit applications.
  • Operating a corporation or LLC, which limits your liability, yields the best business credit results, instead of a sole proprietorship or partnership, which has the risk of full liability.
  • Start building business credit early using a business credit card without a personal guarantee. A debt without a personal guarantee protects you in the event of a default, as the creditor can go after the assets of the company but not you personally.
  • At a separate financial institution, get a business credit card with a personal guarantee. Be aware, however, that as guarantor for the business loan, the lender can deem you personally liable for the debt even with the limited liability protection of the company, so it is best to be extremely diligent in paying this debt timely.
  • Startup businesses will benefit by using vendor lines of credit to build business credit. These are set up with net 15, net 30, net 60 or net 90 days to pay. Set up at least five net 30 pay accounts and pay them in full on time each month. Be sure to choose vendors that report to business credit bureaus.
  • Once business credit is established with vendors, apply next for revolving business credit accounts with such companies as Walmart, Amazon, and Apple to expound upon your business credit. In turn, these accounts will enable your company to obtain larger revolving business credit accounts with Visa, MasterCard, and American Express.
  • Consider using or for business supplies and shipping, as these both report to business credit bureaus. They can check with 411 information services using your EIN.