In the business world, one of the most critical corporate credit concepts is establishing and building business credit.  In order to obtain financing or line of credit approval, a business must typically have an established credit history that justifies the extension of credit sought by it.   And, without established credit, many corporate loan applications are summarily denied.  On the other hand, a corporation that enjoys a strong and established credit rating will usually be approved for credit expeditiously and will often be approached by lenders with competitive financing offers that will benefit the business.

When establishing your company’s credit, experts in the field such as Trent Lee are adamant that the best approach to take is “the sooner the better.”  According to Trent Lee, establishing your business’s credit history from day one is extremely advantageous.  Indeed, businesses with long credit histories instill confidence in lenders in their ability to honor their obligations, a factor which is extremely important for several reasons.

First, a corporate credit concept that is somewhat apparent is that as a new business grows, there is often a need for new loans and financing for the business.  As discussed above, a lengthy credit history tends to impress lenders and increases the probability that your company will be offered the most competitive and best deals and rates.

Second, having adequate corporate credit in place operates to insulate the business owners’ personal credit history from business use and possible adverse reports.  A business should utilize a credit card that is issued in the business’s name, rather than an owner’s name.  That way, if the business is delinquent in making its payments, only the business’s credit history will be impacted, and the owner’s credit history will not be affected at all.  

In order to begin building credit for your business, there are several requirements that will need to be met.  First, your business must be a properly formed legal entity, such as a corporation, limited liability company, or partnership, in order to qualify for business credit.

In addition, to qualify for business credit, your business must have a physical address and a telephone number.  Having these two methods of contact will demonstrate to lenders that your business is legitimate and not merely a sham.

Another important corporate credit concept is that you will need to make available to lenders information regarding your investors.  If your business has been capitalized by another lender, or by a private investor, you will need to disclose this information when applying for business credit.

Similarly, you will also need to establish to potential lenders that your business has filed all required paperwork, obtained all necessary permits, and satisfied all licensing requirements of the state in which you do business. 

Often, in the case of a brand new business with no credit history at all, the personal credit histories of the owners of the business may be examined by lenders when the business applies for a credit card, a line of credit or a loan.  Trent Lee emphasizes that having a top notch personal credit score and history bodes well on your company’s ability to obtain credit and to be offered the most favorable rates.

Another corporate credit concept that is important is registering with the credit bureaus. Dun & Bradstreet and Experian are the two major business credit reporting agencies in America.  These companies maintain information regarding the credit histories of various businesses, both large and small.  You should register your company with these two agencies by filling out and submitting their online business credit applications.  Although it can take up to a month to complete the registration process, once it is completed, all of a company’s transactions with its lenders will be contained in the business’s credit report.

Finally, another concept that Trent Lee emphasizes the importance of is the Paydex Score.  A company’s Paydex Score is analogous to a human being’s FICO Score, and is utilized to place a number, or score, on a business’s credit history. To earn a high Paydex score, a business must demonstrate its responsibility as a borrower by making timely payments and honoring its financial obligations.  By following these corporate credit concepts, your business will be on the right track to establishing credit in no time at all.

Author: Trent and Chad Lee