Startups

How a new startup can begin to build credit

  • 5 min Read
  • May 9, 2016

Author

Escalon

Table of Contents

As a startup, you are most likely concentrating your financial efforts on obtaining venture capital.


At the same time, we bet you are spending some of your own money.


This is why it’s so important to build your business credit from the very beginning of your startup. It’s much easier to build your credit than it is to repair it once it’s gone south.


As a new startup, you might find the world of financial lending an unfriendly place. Perhaps you’ve been told they will only lend you money once you’ve proven yourself and have an acceptable credit history.


It’s a good idea to put some effort into building your credit from the start. In this article, we look at how a new startup can begin to build credit.


#1: Create a business entity



Visit with an accountant to decide if you should incorporate your startup. Consider a C Corporation, S Corporation, or LLC. You want to visit with your accountant because how you decide to do this impacts your taxes.


This is your very first step when building credit. It establishes your startup as a legal entity. Plus, when you create a business entity, you also separate your business and personal financial accounts.


A side note: a sole proprietorship can’t apply for a business loan or establish business credit. With this type of setup, you can only get a personal loan.


#2: Sign up for a tax number



The next step is to get an EIN (employee identification number) for your startup. This is the tax ID number for your business. Think of it as the social security number for your business.


When opening your startup bank account, you’ll need this number. If you’re applying on your own, visit the IRS website.


#3: Open a bank account



Mixing personal and business accounts is a bad idea, so set up a bank account for your startup. This is also a good way for lenders to see that you are serious about your business, and that you can manage your account.


You’ll need the EIN before you open your startup’s bank account. If you’ve used a particular bank for your personal finances, go ahead and use them to set up your business account. This might help you obtain business credit cards and lines of credit.


#4: Get a business credit card



Unless you have success with your own bank in getting a business credit card, it can be hard to get approval because your startup has no credit history.


Another option is to open a secured credit card with your own money. Many banks offer this option, and your limit will be what you put on the card. Once the card starts reporting to the credit bureaus, you’re on your way to establishing credit.


#5: Get listed with the business credit bureaus



You want to get a DUNS number from Dun & Bradstreet – this is used to establish your business credit file. This is what lenders use to determine your credit worthiness.


You can get this number for free, while also using Dun & Bradstreet’s paid services and credit building programs.


You also want to look at the main business credit bureaus, Equifax and Experian. Get a report from them and make sure your business, name, address, and phone number are listed on all of the major credit directories. This is where you’ll see your credit card history listed, which can be a good source of positive credit.


Remember – the more creditors who report a good payment history, the better your credit.


#6: Establish lines of credit



Consider opening credit lines with retailers and suppliers. You want to request a net-30 credit option. This in turn helps you build credit if you pay your accounts on time.


Aim to apply for at least five lines of credit, but don’t apply for everything all at once. Spread your applications out over several weeks.


#7: Pay your taxes



Always pay your taxes on time, and always pay what you owe. This is a great way to build your business credit.


#8: Pay on time, all the time



Once you’ve gone through all the steps above, this is the one that really counts. It is the only path to building credit for your startup.


Final thoughts



We encourage you to begin to build credit for your startup from the very beginning. Why?


Because, while it may be tempting to lean on your own personal credit to fund your startup, this can spell problems for you later on. If you use your own personal credit, you are tying up your loans, mortgage, personal credit cards and perhaps your car.


If you have startup problems, using your own personal credit can make it hard for you to get personal loans.


When you start to build startup credit, you completely separate your business from your personal accounts. This makes your startup credit dependent on your company’s payment history, assets and cash flow. It doesn’t look at your personal financial obligations.


Start building your startup credit now, because your success depends on it. It gives you security and the ability to separate the personal from the business.


Are you a new startup? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your finances, payroll, HR duties and more to us. Contact Escalon today to get started.


Image: Francesco Gallaroti

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

Common Accounting Mistakes That Cost Medium-Sized Businesses Millions 

Accurate accounting is the bedrock of any successful business operation. Yet, medium-sized businesses—those that have grown beyond the small-business stage...

Read More
Taxes

1099 vs. W-2: How to Ensure Compliance and Reduce Risk 

Distinguishing between independent contractors (1099) and employees (W-2) is a pivotal compliance matter for U.S. businesses. Misclassification can result in...

Read More
Accounting & Finance

Capital Raising in Spring: How to Position Your Startup for Investor Interest

Spring symbolizes renewal, making it an apt metaphor for startups aiming to secure fresh capital to fuel their next growth...

Read More
uncategorized

Spring Clean Your Payroll: Essential HR Best Practices for Scaling Startups

Payroll is more than just issuing paychecks—it’s a complex, high-stakes process that can significantly impact employee satisfaction, legal compliance, and...

Read More
Accounting & Finance

How to Leverage Q2 Financial Data to Drive Startup Growth in the Second Half of the Year

For startups seeking sustainable growth, every quarter provides a treasure trove of data—but Q2 data can be particularly revealing. By...

Read More
Accounting & Finance

Q2 Business Planning: Adjusting Your Financial Strategy for the Rest of the Year

By the time Q2 rolls around, many startups have a clearer picture of their performance and market positioning compared to...

Read More
People Management & HR

5 Key HR Challenges to Address Before Summer to Keep Your Team Engaged

For many startups, the summer months can be a dual-edged sword. On one hand, warmer weather and looming vacations can...

Read More
Taxes

How to Maximize Your Tax Deductions: Essential Tips for Startups in Q2

Tax season often triggers stress and complexity—especially for startups laser-focused on building products, acquiring customers, and scaling operations. Yet savvy...

Read More
Startups

Mid-Year Financial Checkup: How to Assess and Adjust Your Startup’s Budget 

The halfway mark of any given year is more than just a date on the calendar; it’s a valuable checkpoint...

Read More