Building business credit (and why to do it)

Dustin Johnson
By Dustin Johnson

If you’re like many small business owners, particularly those running a “side hustle” or a freelance gig in addition to your primary wage earning, chances are that you have put business expenses on a personal credit card. Many new business owners finance some or all of their business endeavors on personal credit. Famous business biographies are full of tales of this. So there’s nothing wrong with having done it. 

So why establish business credit?

Building credit in the name of your business instead of in your name can help you in several ways. First, it may protect your assets. Should anything happen where it becomes a challenge to make payments on outstanding loans or business credit cards, the ding will be against your business entity and not your personal credit. Having sufficient credit available to you means you’ll still be able to meet business expenses during hiccups in cash flow. Establishing good credit in your business name may make you eligible for better terms from vendors. Here’s what you should know: 

Getting started building business credit 

The first step in building business credit is establishing a business entity that qualifies for an employer identification number (EIN). You can’t build separate business credit if you’re running your business under your name and social security number. You can only do it if your business is a separate legal entity. Talk to an accountant or tax preparer to determine whether establishing your business under a separate entity is the best move for your specific circumstances.

After getting an EIN, you’ll want a separate business bank account. This is crucial for keeping your business and personal expenses separate. Get in the habit of requesting payment only to your business checking account. 

Once you’ve got an EIN and a business checking account, you can begin the process of building business credit. Like with personal credit, there are reporting agencies that maintain credit files on businesses. In the case of business entities, those reporting agencies are Equifax Small Business and Dun & Bradstreet. Like personal credit reporting agencies, they pull data from various sources. These include UCC filings, business registrations, and payment data from banks. You can run a free search to check if your business is already registered with Dun & Bradstreet. If it is, you’ll be able to access your DUNS number. You'll need this to start building your business credit. If your business is not in their database, you can ask to have it included.

| Like with personal credit, there are reporting agencies that maintain credit files on businesses.

Next steps to building business credit

Once you’ve established the basics, you can begin to build credit in your business name. An easy way to start is to ask that your suppliers bill you on “Net 30” terms. This gives you 30 days to pay for the things you need to run your business. Besides helping with cash flow, this also helps build your record as a business that pays its bills on time. Be sure to do business with suppliers that report positive credit activity to the reporting agencies.

You can also apply for a business credit card, although if you have little or no business credit established. 

Keeping your business credit in good standing 

Like with personal credit, it’s important to stay on top and ensure your business credit is good. Get into the habit of requesting your business credit file regularly. Dispute any errors or outdated information. Ask any new vendors to report your activity to the credit reporting agencies. As you can, move away from personally-secured loans and credit cards. Make sure you’re borrowing only in your company’s name for your company’s expenses. That way, your personal assets will still be protected if anything goes wrong with the business.

Managing credit is one of the key financial responsibilities of small business owners. Having good credit can also help you weather any unexpected tax bills by giving you a way to maintain cash flow while staying current on taxes. Another important thing to do is to stay on top of tax deadlines. ComplYant allows you to manage your e-commerce business taxes in one dashboard. Keep up with tax deadlines as you build your future. Sign up today.

Dustin Johnson
By Dustin Johnson
Dustin Johnson is a Senior Tax Research Specialist at ComplYant. Prior to joining ComplYant, he spent over eleven years performing tax research at the world’s largest tax preparation company. Dustin holds a Bachelor of Business Administration and a Juris Doctor. Outside of work, Dustin enjoys biking and spending time with his family.

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