Business Credit

Establishing and managing business credit is a critical aspect of financial success for small businesses and start-ups in the United States. Building a strong credit profile enables businesses to access financing, secure favorable terms, and establish credibility with suppliers and lenders. In this article, we will explore how small business owners can obtain credit, the importance of a Dun & Bradstreet (D&B) number, and the various types of credit available to support their growth and financial stability.

How do I get business credit as a small business owner?

As a small business owner, there are several steps you can take to obtain credit:

1. Separate Personal and Business Finances: It’s crucial to establish clear separation between personal and business finances. Open a business bank account and maintain separate records for your business transactions. This separation will help build a solid foundation for your business credit.
2. Obtain an Employer Identification Number (EIN): An EIN is a unique identifier assigned by the Internal Revenue Service (IRS) to your business. It is essential for tax reporting and establishing your business’s credit profile. You can apply for an EIN online through the IRS website.
3. Register Your Business: Registering your business as a legal entity, such as a corporation or a limited liability company (LLC), provides credibility and legal protection. It also helps in establishing a separate small business credit profile.
4. Establish Trade Credit: Trade credit is credit extended by suppliers and vendors that allows you to purchase goods or services and pay for them later. Begin by working with suppliers who report your payment history to business credit bureaus. Consistently making payments on time will help build your creditworthiness.
5. Apply for Business Credit Cards: Business credit cards provide a convenient way to manage expenses and build credit. Look for cards specifically designed for small businesses and compare their terms, rewards, and benefits. Make timely payments to demonstrate responsible credit management.

Dun & Bradstreet (D&B) number

A Dun & Bradstreet (D&B) number, also known as a DUNS number, is a unique nine-digit identifier assigned by Dun & Bradstreet, a leading business credit bureau. It is widely used by lenders, suppliers, and partners to assess the creditworthiness and reliability of a business.

Obtaining a D&B number is important for building your business credit. It allows you to establish a credit file with Dun & Bradstreet, which tracks your payment history, credit utilization, and other relevant business data. Lenders and suppliers often rely on D&B reports to make informed decisions about extending credit or forming business partnerships.

To obtain a D&B number, you can visit the Dun & Bradstreet website and complete the registration process. You may need to provide information about your business, such as its legal name, address, and industry classification. Once registered, Dun & Bradstreet will assign you a unique DUNS number, which will be used to track your small business credit activity.

Types of Credit Available To Small Businesses

1. Business Loans: Small businesses can access financing through term loans, lines of credit, or Small Business Administration (SBA) loans. These loans provide capital for various business needs, such as expansion, equipment purchase, or working capital. Lenders assess your creditworthiness based on factors such as your credit history, financial statements, and business plan.
2. Business Credit Cards: Business credit cards offer flexibility and convenience for managing expenses. They provide a revolving line of credit that can be used for purchasing goods and services. Responsible use of business credit cards, including making timely payments and keeping credit utilization low, can help build a positive credit history.
3. Trade Credit: Trade credit, as mentioned earlier, is credit extended by suppliers and vendors. It allows businesses to purchase goods or services and pay for them later. Establishing and maintaining good relationships with suppliers who report to business credit bureaus can positively impact your credit profile.
4. Business Lines of Credit: A business line of credit provides access to a predetermined amount of funds that can be utilized as needed. It offers flexibility and can be used for various purposes, such as managing cash flow, covering unexpected expenses, or seizing growth opportunities. Interest is only charged on the amount used.
5. Business Leasing: Leasing equipment or vehicles can be a cost-effective option for small businesses. Lease payments are often reported to credit bureaus, contributing to your business credit history. Timely lease payments demonstrate financial responsibility and can enhance your creditworthiness.
6. Vendor Financing: Some suppliers offer financing options that allow businesses to purchase goods and pay for them over time. This arrangement can help manage cash flow and build credit history with specific vendors.

Conclusion

Establishing and maintaining a solid small business credit profile is vital for the financial success and growth of small businesses and start-ups. By following best practices, obtaining a D&B number, and leveraging various types of credit, business owners can access the necessary funds, establish credibility, and position their businesses for long-term success in the competitive landscape of the United States.

References –

https://www.sba.gov/business-guide/plan-your-business/establish-business-credit

https://www.wolterskluwer.com/en/expert-insights/how-to-build-business-credit-for-a-small-business

https://www.backd.com/blog/how-to-build-business-credit/

https://files.consumerfinance.gov/f/documents/cfpb_2022-research-conference_session-6_fonseca-wang_paper.pdf

https://www.dnb.com/products/small-business/check-my-business-credit.html

https://hbr.org/1983/05/the-five-stages-of-small-business-growth

https://www.forbes.com/advisor/credit-cards/best/business-cards-for-startups/

https://www.forbes.com/advisor/credit-cards/best/business-cards-for-startups/