Credit scores. As a Waco business entrepreneur, you’re probably all too familiar with the importance of having a good one. And if for some reason establishing and building your business credit score isn’t high on your financial priority list, that will change the first time a big bank rejects your application for a credit card. Or when you’re faced with steeper interest rates than you’re struggling to afford. Or when you just can’t get that small Waco business loan to cover those expansion costs.
It pays to know the top ways to build business credit quickly, especially if you want your business to thrive rather than just survive. The problem is that new businesses start out with little to no credit history.
Luckily for new entrepreneurs and startups, there are a variety of actionable tips you can implement to accelerate your credit score growth. Let’s break them down one by one.
Get an EIN (Even If You Don't Technically Need One)
An EIN, or an employer identification number, is a unique nine-digit number assigned to your company by the Internal Revenue Service, which is used for filing tax returns, applying for permits or credit cards, and opening business bank accounts. It’s essentially the business version of a social security number. While not all businesses are required to obtain an EIN, it’s necessary to get a business credit score in the first place. Plus, many banks require an EIN if you want to open up an account with them.
Fortunately, it takes only a few minutes to apply for an EIN on the IRS website (and it’s free).
Consider a Local Bank, Rather Than a Big-Box Chain
Your next step is to open up a business account, but before you do that you’ll need to decide who you’ll partner with. Your banking partner should be as invested in your success as you are, which is why choosing a community bank might be a better option for local Waco entrepreneurs.
When partnering with a community bank, they’ll get to know you, look at your qualifications, and how your business can enhance the local economy when you’re ready to apply for lines of credit, rather than just entering your credit score into an application. That level of personalization and localization can pay off in more ways other than lending decisions. Rather than redirecting you to some far away call center should you need support, community banks focus on forging personalized relationships, know the market conditions in the area, and can connect you with other local organizations—like suppliers, service providers, and potential clients—that can help grow small businesses like yours.
Open a Business Bank Account and Keep It Separate From Your Personal Expenses
Now that you’ve decided on your banking partner, you can go ahead and open a business account—but be diligent about using it for business expenses only. This is important in order to protect yourself and your business should you or your business run into financial hardship. Plus it makes filing taxes easier at the end of the year.
Most importantly, it’s a requirement if you want to start building a credit history. You’ll need an established business account with a healthy spending history if you ever want to apply for a loan or credit card. Additionally, it acts as a reference for all three business credit reporting agencies.
Get a Business Credit Card or Loan
With an EIN and business bank account, you can now accelerate your journey towards building substantial business credit. While it will gradually start to build as you pay bills or make payments using your business bank account, you can fast-track your credit score’s rise by securing at least one business line of credit.
This can come in two forms: a business credit card or a business loan.
Business credit cards are best for regular expenses, such as purchasing office supplies or equipment for your enterprise. Business loans are best for purchasing office space or making larger buys, especially for expansions. Either way, get at least one business line of credit and use it to show lenders that you can be trusted.
Make Payments On Time and In Full
Once you’ve started using your loan or business credit card, be sure to make any payments on time and, if possible, to pay down any debts in full.
For example, say that you have a business credit card and you use it for $2,000 in office supplies. After making your purchases, try to pay down the entire $2,000 balance before the end of the billing cycle.
This shows the credit card holder that you are very trustworthy when it comes to credit, and this will significantly bump up your business credit score.
The same thing goes for small business loans. If you pay them down aggressively, such as by making more than the minimum payment and paying down the full loan balance before the term ends, your credit score will increase more than if you just made a minimum payment.
Beyond building your reputation in the eyes of lenders, this will save you money. By only paying the bare minimum, you’ll cost yourself more money in the long run through interest accrual.
Get to Know the Big Three Reporting Agencies and Monitor Each of Your Profiles
Four big business credit bureaus provide credit scores: Dun & Bradstreet, Experian, TransUnion, and Equifax.
If you recognize the names Experian, TransUnion, and Equifax, that’s because they also operate well-known consumer credit reporting agencies as well. Each one has a different formula for calculating scores, collects data from various sources, and may have different information about your company.
Of the big four, Dun & Bradstreet is the only credit bureau that focuses exclusively on business credit. In addition to rating your company’s financial strength and creditworthiness, they report on previous payment interactions with vendors and other suppliers, which is why potential suppliers often look at your D&B reports before they offer your business trade credit.
Since you never know which report your vendors, lenders, or potential investors will check, it’s smart to maintain and monitor profiles at all four.
This might sound like a lot of plates to spin, but the good news is each of the business credit agencies provides an easy way for you to update basic information about your business. If you discover any outdated or incorrect information, you’ll want to contact the agency to make the appropriate change.
Don’t Forget About Your Personal Credit Score, Too
Your business and personal credit reports are completely separate. However, your personal credit profile is also an important part of the small business loan approval equation (especially in those early days when you’re getting your company off the ground and building your reputation in the eyes of lenders).
As the founder, you’re personally guaranteeing the debt. Therefore, how you manage your personal debt obligations plays a big role in how lenders evaluate your potential business creditworthiness—so it’s very important to take steps to make sure your personal credit score is as strong as possible.
We Want to Talk Business. Your Business.
A good bank can prove to be an invaluable partner to small business owners, not only helping them build their credit but also working with them to plan for their future success. At TFNB, we’re proud to invest in local entrepreneurs, who in turn, invest back in our community. Whether you need help exploring your credit-building options, interested in learning more about a small business loan, or simply want to chat about your business’s future goals, we’re here for you during every step of your journey.
To talk with a friendly TFNB banker about the resources available to you, drop by any location during lobby hours.
If you have any questions or would like to know more about our banking solutions, contact us at 254-840-2836
