How to establish business credit as a sole proprietor

Many entrepreneurs start their business by diving in head first. They don’t incorporate or even get a business license; they just start selling their product or service. While there’s nothing inherently wrong with this process, they may find it hard to get financing down the road because they haven’t taken the crucial step of building business credit.

Your business can have its own credit rating, even if you continue to operate as a sole proprietorship without a formal business structure. Establishing credit early on, before you need it, can prove to be a significant advantage. Lenders, insurance companies, vendors and suppliers, and even potential clients or business partners may check your business credit.

Here’s how to get started:

1. Register your business

Even if you’re just starting a side business, it’s important to make sure you’re in compliance with any local or state requirements. Get any necessary business licenses and register your “Doing Business As” (DBA) or trade name with your state. (This may be referred to as a “fictitious business name registration” in your state.) Credit reporting agencies may get that information from the state and begin to track your business.

Also request a free D-U-N-S number from Dun & Bradstreet, one of the major commercial credit agencies. They use this number to identify businesses in their database the same way that a Social Security number helps identify you.

2. Get a business credit card

To build credit, you’ll need accounts that are reported on a regular basis to commercial credit reporting agencies, such as D&B, Experian, or Equifax. Most business credit cards report payment information to at least one or more of these credit bureaus. They may also report to the Small Business Financial Exchange, which is a commercial credit database that makes the data available through Certified Vendors (partner agencies). Check out this guide to learn which business credit bureaus the major card issuers report to.

3. Open vendor accounts

Some companies sell their products to small businesses on terms, which means the payment isn’t due at the time of purchase but rather in 10 days (net-10), 30 days (net-30), etc. If those payments are reported to commercial credit agencies, they can help establish credit. (Here are three vendor accounts that help build credit.)

Buy items you need for your business — think shipping or janitorial supplies, or even coffee for the coffee machine — and pay those promptly to help boost your business credit score. Remember: paying on time is one of the best things you can do to build strong business credit, whether personal or business.

4. Add existing accounts

You may be able to get accounts you’ve already been paying for added to your business credit report. You generally don’t go directly to the bureaus to do this, however. Instead, look into services such as eCredable which helps business owners get utility, cell phone, and internet bills added to their business credit reports. Up to 24 months worth of payments can be added, which can be a big benefit to a business with zero to few accounts reporting.

Keep in mind that until you form a legal entity for your business, your personal finances and business finances are essentially still one. Eventually it may be a good idea to form a separate legal entity such as an LLC, or S or C Corporation. But you don’t need to put your efforts to build business credit on hold until that happens. You can get started today.

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