Your Complete Guide to Building Business Credit

Business credit cards are a convenient way to build business credit while managing cash flow. Now, when choosing a business credit card, consider factors such as interest rates, fees, rewards programs and credit limits. Look for cards that report to business credit bureaus and offer benefits aligned with your business needs, such as cash back on office supplies or travel rewards. Chip Schweiger here. Welcome to another edition of the Things Entrepreneurs Should Know, the business podcast for entrepreneurs, founders and business owners who want to build lasting financial value and supercharge the growth of their business. For many entrepreneurs and small business owners, the concept of business credit can seem pretty foreign and elusive, but building strong business credit is an absolutely crucial component for any successful business, because it opens up a world of opportunities. Just think about how good it would feel to secure better financing options or build credibility with suppliers and partners. So today on the show, let's explore everything you need to know about building business credit. I'll cover the practical steps and valuable tips to help your business thrive. It's what you need to know and it's what you'll want to implement to set your business up for success. Plus, we'll talk about what not to do, so you can steer clear of those too, and we'll do it all in about 10 minutes After the episode, c heck out the show notes at teskpod. com.

Chip Schweiger: 2:00

Hi and welcome back.

Chip Schweiger: 2:05

For many entrepreneurs and small business owners, the concept of business credit can seem elusive and complex, but I'm here to help, so let's get right into it. First, you may be asking yourself what's business credit and how does it differ from personal credit? And here's the thing Understanding the differences between business credit and personal credit is the first step in building a robust business credit profile. While personal credit reflects your history of managing personal finances, business credit specifically relates to your company's financial health and credit worthiness. Business credit is assessed by credit bureaus like Dunn and Bradstreet, experian Business and Equifax Business. These bureaus use different criteria compared to personal credit assessments by focusing on factors such as payment history with vendors, outstanding debts and the age of your business. But the biggest benefit to getting your arms around this is simple Strong business credit can help separate your personal and business financial liabilities. It can help you protect your personal assets and it'll help you improve your business's borrowing power. So here's the steps to building business credit, and this is really what I call building the foundation.

Chip Schweiger: 3:18

First is registering your business. The journey to building business credit starts with formally registering your business. The journey to building business credit starts with formally registering your business, whether you choose to structure your business as an LLC, a corporation or a partnership no-transcript. This step not only legitimizes your business, but also helps separate it from your personal finances, a critical aspect of building business credit. Next, you'll want to get a business bank account opened. Once your business is registered, the next step is to open a dedicated business bank account, and this account should be used solely for business transactions. It's really important to maintain a clear separation between personal and business finances. Plus, regular use of your business bank account helps establish a financial history, which is essential for building business credit. You'll also want to look into obtaining a DUNS number. A DUNS number, provided by Dunn and Bradstreet, is a unique nine-digit identifier for businesses. It's often required by vendors, suppliers and lenders when checking your business's creditworthiness. Now, obtaining a DUNS number is free and can be done through Dunn and Bradstreet's website, and I'll put a link to their site in the show notes. This identifier is a key component in establishing your business credit profile, so don't skip this.

Chip Schweiger: 4:43

A parallel approach is to build credit with vendors and suppliers, and you do that by establishing trade references and using credit lines for vendors. So first, trade references, also known as trade lines, are accounts you have with vendors and suppliers who report your payment history to business credit bureaus. And I'll tell you, establishing trade references is a really powerful way to build business credit. To do this, work with vendors who extend credit terms, such as net 30 or net 60 payment terms, and ensure they report your payment history to the credit bureaus. Vendor credit lines, on the other hand, are another effective tool for building business credit. These are lines of credit extended to you by suppliers, allowing you to purchase goods and services on credit and pay later. By consistently paying these invoices on time or early, you can positively impact your business credit score. And again, same advice here Always communicate with your vendors to ensure they report your payments to the credit bureaus.

Chip Schweiger: 5:46

Something else you can consider is securing business credit cards. Business credit cards are a convenient way to build business credit while managing cashflow. Now, when choosing a business credit card, consider factors such as interest rates, fees, rewards programs and credit limits. Look for cards that report to business credit bureaus and offer benefits aligned with your business needs, such as cash back on office supplies or travel rewards. And just a note on using the card once you get it. To make the most of your business credit card, practice responsible use. This includes paying your balance in full each month to avoid interest charges, keeping your credit utilization low, and using the card regularly, but not excessively. Here's the little secret. Responsible use demonstrates financial discipline and positively impacts your business credit score. Financial discipline and positively impacts your business credit score.

Chip Schweiger: 6:43

Next up is business loans, which can also be a powerful tool in building business credit. Now, business loans come in various forms, including term loans, lines of credit and SBA loans. Understanding the different types of loans available can help you choose the right option for your business needs. For example, term loans provide a lump sum of capital with fixed repayment terms, while lines of credit offer flexible access to funds as needed, and SBA loans, backed by the Small Business Administration, often come with favorable terms and lower interest rates. So don't forget to look here, too. Taking out a business loan and repaying it responsibly can significantly boost your business credit score. We've talked about that before. To leverage loans effectively, ensure you make timely payments and manage your debt wisely, borrow only what you need and can afford to repay, and avoid overextending your business financially. Consistent, on-time loan repayments demonstrate financial stability and reliability to creditors.

Chip Schweiger: 7:44

Now, just like your personal credit, it's important to monitor your business credit Regularly. Monitoring your business credit score is essential for maintaining a strong credit profile. Many credit bureaus offer monitoring services that provide updates on changes to your score and alert you to potential issues. By staying informed about your credit status, you can address discrepancies quickly and take proactive steps to improve your score if needed. Improving and maintaining a good business credit score requires ongoing effort and attention. Key steps include paying bills on time, minimizing outstanding debts and keeping credit utilization low. Additionally, regularly update your business information with credit bureaus to ensure it's accurate.

Chip Schweiger: 8:32

I guess what I'm trying to say is consistency and diligence in managing your business finances is really the key here. So, to wrap it up, building and maintaining strong business credit offers numerous long-term benefits for your business. With a solid credit profile, you'll have access to better financing options, including lower interest rates and higher credit limits. Strong business credit also enhances your credibility with suppliers and partners, making it easier to negotiate favorable terms and secure essential resources. In the long run, a robust business credit profile can significantly improve your business's financial health and growth prospects.

Chip Schweiger: 9:14

A proactive approach to building and managing your business. Credit is essential for any entrepreneur or small business owner. By following the teskpod. com we discussed, you can establish a strong credit foundation, build positive relationships with vendors and suppliers and strategically leverage credit to support your teskpod. com business's success. Remember the efforts you invest in building business. Credit today will pay off in greater financial stability and more opportunities for growth in the future.

Chip Schweiger: 9:46

Well, that about wraps up another edition of the Things Entrepreneurs Should Know podcast. Be sure to check out our website at teskpodcom, where you can find the show notes, an archive of our past episodes and other resources to help grow your business. That's teskpodcom. And if you haven't done so already, I'd appreciate if you take just one minute to give us a review on Apple Podcasts or rate us on Spotify. It helps out a lot to get this to more entrepreneurs and business owners. And if you've done that already, please consider sharing the show with family and friends who you think would get something out of it. As always, thank you for your support. This is Chip Schweiger, reminding you that if you always do what you've always done, you'll always get what you've always gotten. We'll see you down the road.