10 Things You Can Do to Establish Amazing Business Credit

Updated: August 05, 2009

Good business credit is crucial to the success of a company. It not only helps potential clients evaluate whether they'd like to do business with you, but also secures a certain level of respectability. Establishing an excellent business credit score means you'll be in the best position to negotiate top deals for your company, from low interest loans to competitive credit cards, without jeopardizing your personal credit score. Unfortunately, many fledgling businesses and budding entrepreneurs often make the same mistakes when starting out, so their business credit suffers. But that isn't an inevitability. By following these simple rules, any company will be sure to build up brilliant business credit.

1. Make your business known. First of all, name your business in a way that it will be easily identifiable. This doesn't mean using a wacky name - just something that's memorable and creatively reflects what your business is about. Make sure the company name stands out clearly on your Web site, packaging and marketing materials, and is listed correctly in the Yellow Pages. If your business is based at home, it's always good to set up a separate business line and list it with 411 or the White Pages.

2. Write a good business plan. If you can demonstrate that you know where you want your business and your money to go, creditors are more likely to see you as a good prospect. Someone who just wants some money for "costs" isn't going to be viewed as well as someone who has a good idea of what he or she is going to spend the money on and how he or she intends to pay it back.

3. Set up shop properly. If you're operating as a small business as a personal venture or as a partnership, setting up a corporation or limited liability company is strongly advisable, though it's a good idea to weigh up the advantages and disadvantages of each before you decide which one to go for. Consulting an accountant or corporate attorney will help steer you in the right direction, but there is a wealth of information online so you can research what best suits your needs first.

4. Get in with the IRS. As soon as possible, apply for your Employment Identification Number, or EIN. It will be the tax identification number for your business, much like your social security number for your personal taxes. You can apply via fax, phone or snail mail, although online via the IRS Web site is undoubtedly the quickest and easiest method.

5. Don't make it personal. Some budding entrepreneurs find that the only way they can secure funds for start-up costs is by using their own personal credit rating. Be warned though: while you might be doing your business a favor by utilizing your own good credit history, if your business fails or doesn't do as well as you'd hoped, it will go into decline and so will your own personal credit rating, which may end up quashing your chances of having another go at starting a business for some time to come.

6. Open a reputable business account. As early as you can, open a business checking account with a well-established bank. It's important, especially in the current financial climate, to check out the bank's background and whether it's likely to stand up to future financial instability. Most banks offer introductory business packages, so shop around. More often than not, smaller community banks will be more accommodating to small local companies. The main thing is to research what's available to you and evaluate a number of banks before making a definitive decision. After all, this is a potentially long-term relationship you're entering into.

7. Apply for a DUNS number. A DUNS number, or Data Universal Numbering System, from Dun & Bradstreet, is a unique nine-digit code used to identify your business, and is recognized as the universal standard for keeping track of over 150 million businesses worldwide. It's free to obtain and undoubtedly helps establish credibility for your business among suppliers, lenders and potential clients. Applications can be made online and after 30 days you should receive your DUNS number and be able to start building your business credit record with vigor.

8. Develop good trade relations. Once you've received a DUNS number, start building strong relationships with the people you're most likely to trade with frequently. This doesn't necessarily mean clients; it could be your stationery supplier or courier. Ask your suppliers to open a trade account in your business name and aim to pay on account every time you use them. It's a good idea to make sure the companies you're dealing with are part of the D&B network - not all companies report to D&B - so when you set up the account, your information will automatically be added to your D&B file using your DUNS number. When starting out, plan to open a new trade account each month with a D&B affiliated company so you can quickly build on your business credit. Some of the large companies that offer new businesses credit, without asking for personal details are, Dell, FedEx, Home Depot and UPS, to name a few.

9. Pay up and on time. There's much to be said for having a good set of trading accounts. Well-established businesses with plenty of strong trading behind them are more likely to be able to borrow reasonable sums of money. While missing payment deadlines is sure to cause problems for your credit rating. If you're having difficulty meeting all your commitments, pick up the phone and speak with your debtors. They may be able to extend something for you or offer you a different payment plan. Likewise, with loan repayments, rather than missing a payment, getting a fine and doing the business some serious damage, go and talk to the lender and let it know the situation. Keeping quiet equals a lower rating, and that's going to be like a ball and chain on the growth of your business.

10. Get a business credit card. A good way to influence your credit rating is to start borrowing. That might seem nonsensical - why would a bank lend me money if I'm already borrowing money? Well, if you take out a company credit card, put your expenses on it and pay it off each month, you'll find that not only do you have a great way of managing your cash flow (if initial income is slow) but you'll be doing your credit rating the world of good. You're proving to investors that when you borrow money - even if it's only small sums each month - you can pay it back. Some of the larger credit card companies will insist that your business has been established for at least two years before they will grant you credit, but others will be more than happy to help a small business - something you should take into consideration when scouting around for your business bank account. Use your established trade accounts and D&B record to show that you've been working on building strong business credit; your responsible credit history will hopefully sway the bank manager's decision and lead to you getting your hands on a much sought-after business credit card. This will certainly pave the way to being able to get a business loan with your bank in the future, and secure and good, strong line of credit for your growing business.

Andy Boyd co-founded CreditCardCompare, a well-known credit card comparison site where he blogs about business and money management. You can follow his latest work on Twitter @thecreditletter.

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