Establishing Credit for a New Start-Up

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As a shrewd consumer, you most likely have a fair idea about managing your personal credit. However, as a new business owner, you might not yet have the capacity to establish business credit. Your personal credit score will not come in handy if you require business financing at any point in time. Instead, a strong business credit history will be needed. Business credit basically performs the same function as personal credit by measuring trustworthiness. The credit bureaus collect information from vendors, banks, and other business partners to measure your solvency and allot you a score which, unlike a personal credit score, ranges from 0 – 100.

Why Business Credit is so Important

Just as the strength of your personal credit score determines the kind of credit products you are eligible for and their terms and conditions, a business credit score is a vital component in measuring your métier as a business. Your business partners want to see a reliable track record in terms of payments and other financial handlings. The credit score allows them to make informed decisions about your business, therefore, a good credit score can open up the doors to inexpensive and enduring credit in the future.

Ways to Establish Business Credit

While establishing business credit may seem to be an arduous task for a start-up, here are some ways to do that without much hassle.

Establish a Business Entity

As mentioned before, your aim should be to reflect your payment history on your business accounts rather than personal ones. Therefore it’s vital for it to be a separate and registered entity. Your aim should be to identify the entity that offers you the best solution in terms of your needs and creditworthiness. The two most common options are sole proprietorship and partnerships as they are easier to manage at the start. However, these entities are independent.

If you have chosen a sole proprietorship or partnership, it will be hard for you to differentiate and establish business credit as a separate entity. Both structures do not specifically distinguish an individual and the business. Therefore, it is unable to help you in developing business credit.

The proper structures for establishing business credit are a ‘C Corporation’, ‘S Corporation’ or an ‘LLC’ (Limited Liability Corporation). While it’s important to think of a structure that suits your need of building credit, it is not the only thing that matters as the right business structure depends on many other factors as well.

Get a Federal Tax ID

The IRS relies on an employer identification number (EIN) to observe businesses, especially queries related to employee payroll expenses. It is necessary for every business to get this number as it performs a variety of important functions and establishes business credit at the same time. You will be required to file an application with your state or county government office.

Establish a Dedicated Business Address and Phone Number

While it may sound pretty simple, setting a dedicated office for your business along with a landline establishes your credibility which eventually has a positive effect on your credit score. You will be able to register with business directories and just being listed gets a few points added to your credit report. A phone line can establish business credit by developing a formal trade credit relationship with your vendors and other business acquaintances, which is regarded as a good sign by credit companies.

Institute Trade Lines with Suppliers

Maintaining good relations with only a handful of vendors and suppliers is good for your credit score. However, to really enhance it, you must develop good credit relations with a variety of business partners. As your small business grows, you will be able to procure from many different suppliers that will open up multiple trade lines for you. It will be even better if your partners extend credit and allow you to pay after weeks or months as this shows their trust in you, which is great to establish business credit.


As a small business owner, you must realize that building credit will take time and, if you get the basics right, you will rise up the ranks past your competition. Pay off your business loans and bills in time and follow the guidelines above to ensure that you are on the right credit building track.

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