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How To Build Business Credit For Your Start Up

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How To Build Business Credit For Your Start Up

By Marco Carbajo, Guest Blogger
Published: June 1, 2011 Updated: June 2, 2011

Are you using credit to help finance your new business venture?

You’re not alone as statistics show that over 65% off all business owners use credit for business purchases.  But what’s alarming, is that only 50% of those cards are actually in the business’ name.

As a business owner using personal credit cards for business is a risky approach since you assume total liability and if your company is sued or fails you risk losing personal assets and good credit ratings as well.

So how do you go about building credit in the company’s name without putting your personal credit on the line?

For starters, if you operate as a sole proprietorship you’ll need to incorporate your business and obtain a Federal Tax Identification number.

As a corporation your company is treated as a separate being with its own tax registration with the IRS and state agencies. It files its own tax returns and it can also create its own credit files completely separate from that of its owners.

Your company’s Tax ID Number or Employer Identification Number is the number that you will use to get registered with the business credit bureaus like Dun and Bradstreet.

You will also be required to furnish this number on corporate credit applications because lenders use this information to conduct a business credit check on your company.

Before you start to apply for credit make sure your corporate records, state filings and required business licenses are all up to date. In addition, get your company’s phone number listed in the 411 directory so a supplier or lender can complete every aspect of its verification during the underwriting process.

After you meet these requirements you will be ready to apply for credit and the best place to start is with suppliers. Many types of suppliers, including major brands, extend lines of credit to businesses like yours giving you the opportunity to finance purchases and conserve your company’s cash.

You can obtain products like office supplies, computers and marketing materials with payment terms ranging from net 30 to net 60 days.

You should focus on applying for credit with suppliers that provide products and/or services your company needs in order to make regular purchases using your credit line. By paying invoices on time you will build business credit history and increase your company’s creditworthiness.

With a strong business credit report you can stop relying on your personal credit to qualify for the financing your company needs. Since a creditor, lender or supplier can now easily determine your company’s risk level with a business credit check qualifying will be a much easier process.

As a startup I know it can be tempting for you to decide on operating your business as a sole proprietorship and using your personal credit to fund your business simply because it’s one of the easiest structures to create and you already have the cards on hand.

But by building business credit for your start up, you can improve your company’s image, protect your personal credit, limit your liability and increase your credit capacity since businesses can obtain 10 to 100 times greater financing then an individual.

About the Author:

Marco Carbajo
Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.


Make sure you continue to track your PAYDEX score and make your credit payments before they are due if you want to get a PAYDEX score above 80. There are free systems you can use for exactly this purpose. Try doing a google search for "Free Corporate Credit".
Hello! I live in district 69 in Sarasota county, Fl. My fairly new foundation does educational animal shows. How can I build my biz credit as a non-profit?
I got a business credit card with personal guarantee. I supplied my SSN and the business EID in the credit card application. Am I building the credit history under my business name or still under my personal name? Can someone confirm if I need to remove the personal guarantee in order to start establishing credit for my business? Dun & Bradstreet salesman approached to me and mentioned that I have to pay them to start building credit solely for the business. I'm confused.
One more thing to consider about business credit is how it may allow your business to grow. I've talked to a lot of business owners who say that they could grow their business quicker if they only had a little bit more operating capital. They could advertise their business more, replace old equipment, buy more items to sell in their store, etc. It may be possible to free up some of that needed capital if you can just match some of your expenses with items your business is already buying on a regular basis. If you spend $100 a week on office supplies and you are able to buy office supplies using business credit for just one month, that would temporarily free up $400 in operating capital. You would have to pay it back of course but could you make a profit from that extra $400 before a payment is due? For some business owners the answer to that question is yes. Now that's just a small example but you can see how a business owner who might have though they needed a small business loan could possibly use business credit instead. There are a lot of ways you can make use of business credit which may give your business the advantage it needs in order to succeed.
Another reason that I'll be incorporating. I don't want to use my credit to finance my business, and I especially don't want to put my family's house on the line. Business credit is a must.
Financial aspect certainly serve as the lifeblood of any business, they even possess great purchasing power as a business owner it is important that your company has good credit. Interesting tips! appropriate for aspiring business owner, so sure this post will help them a lot to gain useful insights that can be applied later on as they established their respective business ideas. Philippine real estate
When applying for credit with suppliers, getting started is the hardest part. Since you won’t have any business credit established, a good supplier will still try and set up an account for you by asking for a personal guaranty and by running your personal credit report.This may be the only option you have to get credit extended but don’t let the process stop there.Keep track of all the personal guaranties you sign. If you ever close or sell the business, send a letter to your supplier cancelling your personal guaranty; send the letter certified mail and keep the return receipt (green card) forever.When signing a personal guaranty, ask the supplier if you can make the guaranty only good for one year. That puts the follow up responsibility on them.After one year, contact your supplier about cancelling your personal guaranty. This works especially well if you have established other lines of credit that are not personally guarantied. Your supplier won’t want to lose your business if you have been a good customer and you stand a good chance of them releasing the personal guaranty.
Interesting post. I'll have to keep it in mind, because I'd love to run my own business soon. It'll obviously be challenging, so I can use all the financial help I can get.. BUSINESS CASH ADVANCE
Hi Zoumana, There are many creative ways to obtain financing even if you have less than perfect credit. You can always convert paper assets you may currently hold into cash but the key is to borrow from your greatest strength. While your personal credit may be a weakness at this time you may have other strengths such as strong collateral or a qualified cosigner. There are also options like crowd funding or peer to peer lending that offer a viable alternative to traditional lending. To be most effective with these options make sure you have a solid business plan so you can effectively present your idea to potential backers.All the best,Marco
Hi Mr Carbajo, My name is zoumana.I owne a construction company registered as minority In 2007 i took a microloan from SBA $25,000 until now i didnt pay back the loan cause for many reason.lost house,bad credit. Now i have a good idea for my company that can bring me a lot of cash flow for my business.My need will be $19,500.it is possible for me to have a business loan? thank you

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