Building Business Credit In 2020

How does business credit work?

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Business credit helps obtain unsecured business loans and more.

One of the most important things you can do for your business, besides boost profit, is build your business credit early on. There will likely be a need for business financing and access to capital funding. Since traditional loans have high barriers to qualify,  unsecured business loans could offer a better solution. However, this option will require good business credit.

Let’s talk about everything you need to know to jumpstart building business credit and how it’s going to play a role in receiving unsecured business loans.

How to Qualify for Business Credit

Many people fear building business credit because they’ve struggled to build good personal credit. While there are some similarities to personal credit, you must follow a different path to establish business credit. Let’s look at some of the required steps to get started.

You Must Get An EIN

Your employer identification  number (EIN) or Tax ID number is basically your Social Security number but for your business. This qualifies your business as its own entity. One major benefit an EIN provides is that it looks professional to lenders and also helps mitigate any personal guarantees. The last thing you want to do is have your personal credit and business credit all mixed up. You can apply for an EIN through the Internal Revenue Service (IRS).

Open A Business Bank Account

When it comes to business funding, a business bank account is required for all business loan type products. In addition to this, having a separate business account will help you easily keep track of your business finances by keeping them separate from your personal finances. Of course, this makes it easier during tax season too.  

Importantly, most lenders are required to check that your business bank account  is in good standing and consistently maintains a positive balance. If you do not have a business bank account in place and need help opening one, you can open one online here.

Get A Dun & Bradstreet D-U-N-S Number

This is a process that most entrepreneurs either overlook or don’t even know exists. This number alone can help take your business’ finances to the next level. The Dun & Bradstreet D‑U‑N‑S Number is a unique nine-digit identifier for businesses. This number is assigned once their identity has been confirmed and is used to solidify a company as being unique from any other in the Dun & Bradstreet Data Cloud. The D‑U‑N‑S Number is used as the starting point for any company’s Live Business Identity. To create your D-U-N-S Number, follow this link.

Qualifying for Unsecured Business Loans

As mentioned, business credit will play a role in securing all types of business funding. However, if you have limited credit history or are a new business that lacks collateral, then you may need to look to unsecured business loans for financial aid. Some of the basic requirements for an unsecured business loan include:

  • Personal credit score: For unsecured business loans, a lender will assess your personal credit score. Most lenders prefer that this number be in the 700s, but it is possible to obtain an unsecured business loan with a personal credit score in the 600s. This is especially true if you can show that you have a steady cash flow to make your loan payments. If your personal credit score is lower than that, don’t give up, but be aware that you’ll face higher interest rates and fees.
  • Business credit history: Since no one knows how your business will fare in the future, your history serves as an indicator to gauge your creditworthiness. If you are new in business, then you won’t have much credit history to be able to show. But, with unsecured financing, lenders will be willing to provide you with a loan with limited business credit history. This will offer you with your first big step in being able to build good credit and become eligible for better loan terms in the future.
  • Sales: Banks are willing to provide loans for a percentage of the amount of what you’ve earned. So, the more sales you can show, the higher loan amount you can obtain. SBA loans follow the same qualifications. That’s why it’s important to focus on boosting sales at every stage of your business’ life.
  • Business history: The majority of traditional lenders look for businesses to have been active for at least two years. However, unsecured business loans may make exceptions, especially if you can show that your business is doing well with your financial statements.

An Alternative Solution for All

It may be possible that you are lacking strong business credit and/or high sales. The good news is that you can still land business funding through a merchant cash advance if you run credit card sales. Instead of having to prove your creditworthiness, you’ll fill out an easy application for nearly immediate funding. Your business advance terms can be dependent on your needs and will be repaid through a portion of your future sales.

Business Funding is in Your Hands

Good business credit is certainly going to play its role in obtaining business funding.

Whether you’re looking for traditional business loans or unsecured business loans, lenders will assess your business credit. That’s why it’s always smart to take care of the requirements needed to build business credit history as soon as you get started with your endeavor. 

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