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  • Writer's pictureMarc Primo

Why Building A Healthy Business Credit Is Important

This is an article “Why Building A Healthy Business Credit Is Important” by Marc Primo

Every business established by its owners should have its own financial record and credit score. Its partners have free rein to review the business’s financial standing through these records as they are made available to them. This provision determines whether a company can close its desired funding or if lenders, partners, and suppliers can forge a sound deal with the business.

Why is it essential for every business to protect its financial standing? Because business credit is the number one indicator that a business is fit to do business responsibly and practices healthy management of its own money. If your business is such, you’re in for various benefits all around.

The benefits of having a good financial standing

Aside from getting the funding you desire for, let’s say, capital or expansion projects in the pipeline, your business can also secure lower interest on your future loans if you have a good business credit score. Lenders also become more lenient and may offer flexible payment schemes, while insurance providers can give you lower premiums if they see that you manage your funds well. For partners and suppliers, a good payer can also get better payment arrangements or prices on what they are selling.

However, earning these benefits should always start once you establish your business. That means you should refrain as much as possible from getting yourself into too much debt, which can lower your credit score and financial standing in no time. Manage your capital well and create a business model that can appeal to your investors so that you won’t have to take out too many loans on your banking account.

Just imagine it to be somewhat similar to a personal credit standing which can affect one’s ability to get loan approvals or even a job. Remember that to reap the benefits of a good credit score; your business should show a good history of prompt payments.

If you are starting a business and want to maintain a good credit score while you grow it, here are a few tips that can help:

Consider incorporating your business

When you register a business with the state, you might want to check if you are eligible to enter it as a Limited Liability Company (LLC) or such other incorporated business structures like C Corporations (C-Corp) or Limited Liability Partnerships (LLP). These business structures usually have a number of owners and can operate multiple businesses that are separate from each other.

The thing is, your business can better secure its credit profile and make it easier for you to track and monitor your financial transactions if you register it as an incorporated entity. Once you register your business as an incorporated entity, the state will recognize it as a separate legal entity which sets it apart from any financial standing and records of its owners.

Once you’ve registered your business as an LLC, the next step would be to secure an Employer Identification Number (EIN) which further makes your business a legitimate business enterprise in the eyes of the state. This step should always be accomplished anyways, as the Internal Revenue Service (IRS) requires any business that employs people to have an EIN assigned to them for tax purposes.

However, some businesses like those registered as Sole Proprietorships, are not required by the IRS to have EIN. The difference is that you can get more tax cuts and benefits if you have one, including opening a business account in banks, applying for various licenses and permits, filing for tax returns, and, more importantly, eligibility to secure business credit from the government and its stakeholders.

How to be eligible for business credit

The first thing you have to do to secure business credit and get all the entailing benefits is to open a business bank account. Ensure that this account is separate from any other business entity or your personal bank account. Your bank will take the necessary steps to ensure that your accounts relationship and transactions with the bank are purely business-related. These transactions will include your requests for funding from lenders and applications for other loans.

If your bank or the IRS discovers that your business funds are linked to your personal accounts, your credit standing can greatly suffer and earn you a bad record with the state.

After opening a business bank account, you will also have to secure a multi-digit Data Universal Number System (DUNS) ID from any prominent credit rating and reporting companies like Dun & Bradstreet, Equifax, or Experian. This business ID allows financial institutions to track your credit transactions and score to determine if you are eligible for other loans and funding.

Securing and regularly using a business credit card for business-related expenditures can help establish your credibility with the agencies that track your credit standing. Of course, you’ll have to be religious in paying your bills on time or, if possible, earlier to increase your credit score.

How to maintain a good credit score

Keeping tabs on your loans and payments by strictly monitoring your business’s credit files ensures that there are no mistakes in your credit reports. Your tracking DUNS ID tracking agency can sometimes commit errors in collecting credit data concerning your business, so it’s always best to double-check if your records are consistent and registered with no delayed payments or delinquent entries.

If you find some errors, it is your responsibility to file discrepancy reports to your tracking agency. You may never know when your business can fall victim to online scams and fraudulent financial activity within the company, so you must prioritize regular checks on your records.

Credit bureaus, financial trackers, banks, lenders, suppliers, and your partners will always look into your publicly available credit records to determine if you have a long and stable financial management history. The more you maintain a good credit standing, the more favorable offers will come your way.

Lastly, again similar to your personal bank accounts, remember to pay your bills on time with your lenders, vendors, and credit agencies so that your business credit score doesn’t drop. Paying invoices earlier or promptly on their due dates is always the best way to maintain a good credit standing with any business partner, whether federal or private.


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