How to build business credit as a new business
Help get your business on the path to strong credit with these steps. Presented by Chase for Business.
Building business credit is a crucial part of running a successful company. Much like personal credit, business credit shows lenders how your business manages debt and financial obligations. Strong credit can make it easier — and sometimes cheaper — to secure loans, qualify for lower interest rates and negotiate favorable terms with vendors.
Poor credit, on the other hand, can make growth harder. Since building business credit takes time, it’s important to start early. Here are the key steps for how to establish business credit and improve it moving forward.
Establish your business as a formal entity
To start building a strong foundation for your business credit, consider establishing your business as a legal entity. This means choosing to form a limited liability corporation (LLC), a limited liability partnership (LLP) or a corporation. A sole proprietorship is a viable option for some businesses, but this structure won’t allow you to build business credit separate from your personal credit.
Register your business
Registering your business as an LLC, an LLP or a corporation makes it a separate legal entity capable of building its own credit. This separation can also help form a protective financial barrier between you as the owner and your business. Depending on your business structure and location, you’ll likely have to register your business under its legal name with the Secretary of State.
Get an employer identification number
Next, you'll want to apply for an employer identification numberOpens overlay (EIN) with the IRS. This nine-digit number is like a Social Security number for your business and allows you to file business tax returns, open a business bank account and, most important, apply for business credit.
Obtain a Dun & Bradstreet D-U-N-S Number
A D-U-N-S Number is a unique identifier that helps credit reporting agencies track your business’s credit history. Many lenders and vendors use it when evaluating your creditworthiness, so applying early can help you start establishing your profile.
Once you have established your business as its own legal entity, you can start taking steps to build up its credit.
Understand what affects business credit
Improving your company’s credit profile means developing a track record of positive financial habits, such as paying back your lenders and maintaining a manageable amount of debt. When you apply for business credit — such as a business line of credit, business credit card or business loan — lenders will evaluate several key factors:
- Reliability: This is a measure of whether you consistently pay your creditors early or on time.
- Capital invested: This shows how much you have invested in the business. A larger investment often signals a stronger commitment to the business’s success.
- Credit capacity: This is your business’s ability to repay its creditors.
- Personal credit standing: Strong personal credit can make it easier to secure business credit, especially when you’re just starting out.
- Length of credit history: The longer you’ve successfully managed credit, the more favorable it looks to lenders.
Open a business bank account
Separating your personal finances from those of your business is an important step toward strengthening your business’s financial credibility. The IRS requires all incorporated businesses to have a separate business bank account from the owners or members, so it’s a good idea to set one up as soon as you have your federal EIN.
Business checking account
Opening a business bank account is also an important first step toward building a relationship with a financial institution, one that will become a banking partner when you’re looking to grow operations through a business credit card, business line of credit or business loan.
Business credit card
Using a business credit card is a convenient way to pay for everyday business transactions while at the same time helping to build business credit. Having a bank account and credit card for your business also makes it easier to track business purchases, which will make filing taxes more efficient, and creates a professional image for your business when engaging with vendors.
Establish accounts with vendors
You can build business credit in much the same way as you’d build personal credit — by making purchases and establishing accounts with suppliers or vendors.
- Establish net-30 accounts: Some vendors allow you to defer payments for 30 days. This arrangement helps with cash flow while also reporting payment history to credit bureaus.
- Make timely vendor payments: Consistently paying invoices on time (or early) demonstrates reliability and helps boost your business credit score.
- Start small and build up to higher credit limit requests: Begin with modest credit limits and request higher ones as your business grows. Over time, these accounts establish trade lines that strengthen your credit profile.
Use business credit responsibly
Now that you know the steps for developing a business credit profile, there’s a crucial component to helping you maintain it: using that credit responsibly. To calculate your business’s credit score, agencies will review your company’s financial obligations and repayment history. That means any late or missed payments that have been recorded with credit reporting agencies could negatively affect your business’s credit score. Follow these tips to help establish good business credit:
Pay bills early or on time
Timely payments signal to lenders that your business can manage cash flow well, has enough money on hand to cover its expenses and has a history of paying creditors reliably. Consider spreading out your payments to help ensure you have enough cash on hand to repay your debts. This approach may also encourage your vendors or suppliers to offer discounts or allow for longer repayment terms.
Keep credit utilization low
Credit utilization, calculated as the percentage of available business credit that a company uses, is one of the factors that lenders use to assess a company’s financial health. A low credit utilization ratio signals that a business is managing cash flow effectively, while a high ratio may signal financial stress. A great strategy to build credit and maintain a low credit ratio is to make payments more frequently throughout the month to ensure your total outstanding balance stays well below the 30% utilization mark. When determining your credit utilization, keep in mind that having too many sources of credit can also negatively affect your score.
Monitor your business credit
Checking your business credit report frequently — every few months — is important for knowing the strength of your company’s credit. There are two main credit bureaus that allow you to monitor your business credit: Dun & Bradstreet®Opens overlay and Experian™Opens overlay. Monitoring your credit can provide insight into how best to improve your business credit and help you identify errors early.
How long does it take to build business credit?
Keep in mind that it takes time to build credit, though the timeline is unique to each company. It could take a few months or up to three years to build credit as a business, but each financial action your business takes is an important part of that journey. Here’s a general timeline:
- Initial establishment: 3–6 months — setting up your legal entity, EIN and bank accounts
- Gaining momentum: 6–18 months — opening credit accounts, building trade lines and showing payment history
- Strong, established credit: 18–36+ months — developing a mature credit profile with multiple accounts and consistent repayment
Take the first step toward good business credit
Speak with a Chase business banker to discuss how you can open a business bank account, one of the first steps toward building your business’s credit.
