Laying the First Stone: Initial Steps to Start Building Business Credit

Step 1: Identify Your Business Entity

Sole Proprietorship

When it comes to building business credit, the structure of your business plays a crucial role. For sole proprietors, who operate their business without a separate legal entity, the implications for building business credit are unique.

In a sole proprietorship, there is no legal separation between the business and the owner. This means that creditors and financial institutions often rely on the personal credit scores of the business owner when making financing decisions. In other words, your personal credit history and credit score become closely tied to your business’s financial health.

This reliance on personal credit scores can have implications for the types of financing options available to sole proprietors. It may be more difficult to obtain business credit cards, secure lines of credit, or qualify for business loans with competitive terms.

Furthermore, sole proprietors may face limitations on the amount of credit they can obtain since credit limits are often determined by personal credit history. This can impact a business owner’s ability to expand or make larger investments in their business.


A partnership is a type of business entity that plays a significant role in building business credit. It is formed when two or more individuals come together to start a business and share its profits and losses. In a partnership, each partner can contribute capital, skills, or both to the business.

Partnerships can be advantageous in building business credit because they allow for a diversified pool of resources and expertise. With multiple partners, there is an increased potential for accessing more financing options, which can help grow the business and establish a solid credit history.

When it comes to building business credit in a partnership, it is crucial for each partner to maintain their own personal credit history as it impacts the partnership’s financial health. Just like sole proprietors, partners need to pay their bills on time, manage personal finances responsibly, and ensure accuracy in personal credit reports.

Additionally, partnerships benefit from having a dedicated business bank account and a dedicated business phone line. These measures help establish the partnership as a separate legal entity, reducing the reliance on personal guarantees and supporting the building of a strong business credit profile.


A corporation is a legal entity that plays a significant role in building a strong business credit profile. It offers several advantages, including liability protection for its owners. Unlike sole proprietors and partnerships, where personal assets are at risk in the event of business liabilities, a corporation shields its shareholders from such risks.

Forming a corporation involves a few essential steps. First, choose a suitable business name and ensure its availability. Then, file the necessary documentation, usually known as Articles of Incorporation, with the appropriate government agency. This document provides important details about the corporation, such as its purpose, location, and contact information.

Along with the Articles of Incorporation, you may also need to draft corporate bylaws, which outline the internal operating procedures and governance structure of the corporation. Additionally, corporations are often required to obtain an Employer Identification Number (EIN) from the IRS, which serves as a unique identifier for tax purposes.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) offers numerous benefits for business owners, including limited personal liability for business debts and obligations. Unlike sole proprietorships or partnerships, an LLC provides a separate legal entity, distinct from its owners. This separation allows the LLC to build its own credit history, which can be beneficial for obtaining financing and establishing credibility with vendors.

To form an LLC, you’ll need to follow a few steps. Firstly, choose a suitable name for your LLC and ensure its availability in your state. Then, you’ll need to register your LLC with the appropriate state authorities by filing the necessary formation documents and paying any required fees. These documents typically include Articles of Organization or Certificate of Formation.

Another important step is obtaining an Employer Identification Number (EIN) from the IRS. This unique identifier is necessary for tax purposes and is used to open a bank account for your LLC and file tax returns.

Step 2: Obtain the Necessary Licenses and Permits For Your Business

Federal Licensing Requirements

Obtaining the necessary federal licenses is a crucial step in building business credit. Federal licensing requirements ensure that businesses operate within the boundaries of the law and meet specific industry regulations. To establish a solid business credit profile, it is important to understand the types of federal licenses that may be required based on the nature of your business.

The specific federal licensing requirements vary widely depending on the type of business and industry. Some common federal licenses include:

1. Food and Drug Administration (FDA) license for businesses involved in food manufacturing or distribution.

2. Alcohol and Tobacco Tax and Trade Bureau (TTB) permit for businesses involved in the production, distribution, or retail of alcohol, tobacco, or firearms.

3. Federal Communications Commission (FCC) license for businesses operating in the telecommunications industry.

4. Occupational Safety and Health Administration (OSHA) certification for businesses involved in hazardous industries.

5. Environmental Protection Agency (EPA) permits for businesses engaged in activities that impact the environment.

These are just a few examples, and the types of federal licenses required can vary greatly depending on the nature of your business. It is important for business owners to research and understand the specific licensing requirements that apply to their industry.

By obtaining the necessary federal licenses, businesses demonstrate their commitment to legal compliance and establish credibility with lenders and suppliers. This, in turn, helps in building a solid business credit profile.

Remember that federal licensing requirements are just one aspect of building business credit. It is also essential to focus on other factors such as establishing a separate legal entity, maintaining a good payment history, managing cash flow effectively, and establishing trade credit with vendors.

State and Local Licensing Requirements

In addition to federal licensing requirements, business owners must also fulfill state and local licensing requirements to legally operate their businesses. These requirements can vary depending on the location and the nature of the business.

To start, it is important to choose the right legal entity and business structure for your business. This will determine the specific state and local licensing requirements you need to satisfy. Common legal entities include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.

Once you have determined the appropriate legal entity, you will need to register your business with the corresponding state and local authorities. This typically involves filling out the necessary forms, paying any required fees, and providing supporting documentation.

State and local licensing requirements can cover a wide range of industries and activities. Some common examples include professional licenses for doctors, lawyers, and contractors, as well as permits for food establishments, retail stores, and beauty salons.

Step 3: Open a Business Bank Account and Apply for a Business Credit Card

Finding the Right Bank for Your Business Needs

Finding the right bank for your business needs is an essential step in building your business credit. One of the first things you’ll need to do is open a business bank account, which will give your business an independent identity and allow you to separate your personal and business finances.

When choosing a bank for your business, there are several factors to consider. First, you’ll want to look at the fees associated with the account. Some banks charge monthly maintenance fees or transaction fees, so be sure to compare the costs of different banks.

Second, consider whether the bank offers business credit cards. Having a business credit card can help you establish a track record of responsible credit use and separate your business expenses from your personal finances.

Other factors to consider include the bank’s loan options and its reputation in working with small businesses. Look for a bank that offers competitive loan terms and has experience lending to businesses in your industry.

Applying for a Business Credit Card

Applying for a business credit card is a crucial step in building your business credit. Not only does it come with numerous benefits, but it also helps establish a track record of responsible credit use for your business. One of the biggest advantages is the opportunity for 0% introductory APRs, allowing you to make purchases without incurring interest charges for a certain period. Additionally, many business credit cards offer bonuses and rewards programs, which can help you save money on business expenses or earn valuable points for future use.

One of the great things about business credit cards is that they are accessible to startups and businesses with little-to-no credit history. This makes it an ideal tool for new business owners who are looking to establish their business credit profile. By using your business credit card responsibly and making timely payments, you can demonstrate your ability to manage credit effectively, leading to better credit ratings with major business credit bureaus.

Step 4: Establish Accounts with Suppliers Who Offer Trade Credit to Build Your Payment History

Finding Suppliers That Offer Trade Credit

When it comes to building business credit, finding suppliers that offer trade credit can be a valuable strategy. Trade credit involves receiving credit from suppliers to purchase inventory or materials, typically with longer-term repayment agreements. This allows businesses to manage cash flow more effectively and establish a positive credit history.

To start, research suppliers in your industry who are willing to extend trade credit to their customers. Look for companies that specifically advertise this offer or reach out to suppliers directly to inquire about their trade credit policies.

It’s crucial to check if these vendors report payment history to credit bureaus. This is an essential factor in building your business credit profile. When suppliers report your timely payments to the credit bureaus, it helps strengthen your creditworthiness and can potentially increase your credit score.

Negotiating longer-term agreements with suppliers can also be beneficial. These lengthier repayment terms give your business more time to generate revenue and may positively impact your credit score, as long as you make payments on time.