Having solid business credit is essential for a small business. Credit allows a company to access adequate funds for growth and make the purchases and investments that enable it to remain competitive. Following are five tips to help you build, maintain, and improve your business's long-term credit.

1. Legal Structure and EIN

When starting your company, work with a legal advisor to set up the right structure that makes your business a separate entity. Set up an LLC, an LLP, or a corporation, as opposed to a sole proprietorship, which will not create a separate entity. Register your business and file for an Employer Identification Number, which is your federal tax ID. This will enable you to apply for business credit.

2. Business Bank Account

Your EIN will also enable you to open a business bank account, which will help you build credit.

"This is a mandatory step in creating a clear separation between your business and personal expenses," notes Marco Carbajo at SBA.gov.1 "Your banking relationships play an important role in your company’s funding potential. Not only does your business bank account serve as a bank reference on credit applications, it also provides key data that lenders use during a funding review."

3. Business Credit Card

Just as a personal credit card can help you improve your personal credit, when used responsibly, a business credit card2 can do the same for your business credit over the long term. Reporting agencies will build your business credit profile, which will be a key indicator of your financial standing. Use the card regularly to make purchases to demonstrate responsible credit card spending.

It's a good idea to pay your balance down either in full or in more sizeable chunks. This demonstrates that you're in a comfortable position to pay what you owe and not barely scraping by, trying to make the smallest payment possible. Over the long term, the more you are able to pay back on a regular basis, the better it is for your overall credit. Keeping up with payments is critical. Always ensure you're paying at least the minimum amount due on time, if not more. To prevent missing payments, set up reminders and auto-pay from your business banking account.

4. Line of Credit

Business credit cards are key to improving your business credit over time, but they are not the only means of doing so. Look into a business line of credit2 with your bank if you haven't done so already. Your credit line can be used for working capital, to finance receivables and inventory, to manage marketing programs, to fund investments, or just to meet your short-term cash needs.

5. Credit with Vendors

You can also look at setting up credit with vendors, which helps you build your overall business credit. Some may provide Net-30 options that have additional benefits.

As TRUiC explains, "'Net-30' refers to the net amount of time that a business has to pay for an invoice or other payment before they are subject to late fees. This term is typically used in industries where payments are expected on a monthly basis, but some businesses may extend this concept to be any percentage of time, such as 60 days or 90 days. A net-30 term often offers discounts to businesses that pay their invoices in full within a shorter period of time than 30 days."3

In many ways, improving your business credit helps build your personal credit. The key difference is that the success of your business may hinge on your ability to get the credit you need. These best practices can help keep your business credit in good standing.  

  1. https://www.sba.gov/blog/how-build-business-credit-quickly-5-simple-steps
  2. Subject to credit approval. Terms and conditions apply. See a banker for details.
  3. https://howtostartanllc.com/business-credit/net-30-vendors-to-build-business-credit

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC