Building and Managing Business Credit

By Alan Miklofsky | October 20, 2024

Building strong business credit is essential for long-term growth, providing access to better loan terms, larger credit lines, and other financial opportunities. In this article, we’ll cover how to establish and manage your business credit, use business credit cards strategically, monitor and improve your credit score, and even earn points on credit cards—treating them as a valuable asset, almost like cash.

Establishing Credit History for Long-Term Growth

A solid business credit history allows your company to access funding on favorable terms, scale operations, and build financial resilience. Just like personal credit, the earlier you establish business credit, the stronger it becomes over time.

Steps to Build Business Credit:

1. Incorporate Your Business: Register your company as a legal entity (LLC, S-Corp, or C-Corp) to separate your personal and business finances.

2. Obtain an Employer Identification Number (EIN): Use your EIN, rather than your personal Social Security number, to apply for business credit.

3. Open a Business Bank Account: This helps establish financial credibility with banks and is necessary for most business loan applications.

4. Apply for a Business Credit Card: Start with a small credit limit and make timely payments to build credit history.

5. Work with Vendors that Report to Credit Bureaus: Some suppliers report payment activity to business credit bureaus like Dun & Bradstreet. Paying these vendors on time helps build your score.

Building business credit takes time and consistency, but it lays the foundation for sustainable growth.

Using Business Credit Cards Strategically for Expenses

Business credit cards are powerful tools, offering convenience, rewards, and short-term financing. When used strategically, they help manage cash flow while building credit.

Best Practices for Using Business Credit Cards:

1. Separate Business and Personal Expenses: Keep all business transactions on your business credit card to simplify bookkeeping and tax preparation.

2. Use Credit Cards for Recurring Expenses: Pay for utilities, subscriptions, and supplies with a business credit card to earn rewards on predictable spending.

3. Take Advantage of Interest-Free Periods: Many cards offer a grace period between statement issuance and the payment due date. Use this time wisely to manage cash flow.

4. Pay the Balance in Full Each Month: Avoid interest charges by paying your statement balance in full whenever possible.

5. Monitor Spending with Employee Cards: Issue cards to employees with limits and tracking features to control expenses and prevent misuse.

Using business credit cards responsibly ensures you maintain financial flexibility without accumulating unnecessary debt.

Monitoring and Improving Your Business Credit Score

Regularly tracking your business credit score helps you spot potential issues early and make adjustments to improve it over time. A strong score increases your chances of securing loans and negotiating better payment terms.

How to Monitor and Improve Your Business Credit Score:

1. Check Your Credit Reports Regularly: Use services like Dun & Bradstreet, Experian, and Equifax to review your business credit profile.

2. Correct Inaccurate Information: Dispute any errors on your credit report that could negatively impact your score.

3. Pay Bills and Loans on Time: Consistently meeting payment deadlines is one of the most important factors in maintaining a good credit score.

4. Reduce Credit Utilization: Keep your credit utilization ratio below 30% to demonstrate responsible credit management.

5. Diversify Your Credit Portfolio: Use a mix of credit products—like loans, lines of credit, and credit cards—to strengthen your profile.

Proactively managing your credit score ensures your business remains eligible for future financing at favorable rates.

Earning Points on Credit Cards: Treating Rewards Like Cash

Many business credit cards offer reward programs, providing points, cash back, or travel miles. When used effectively, these rewards can become a valuable asset, reducing operational costs and improving cash flow.

Tips for Maximizing Credit Card Rewards:

1. Focus on Cards with Relevant Rewards: Choose cards that align with your business’s spending habits—for example, a card with bonus points on office supplies or travel.

2. Redeem Rewards Strategically: Treat points like cash by using them to offset expenses such as travel, office supplies, or even statement credits.

3. Track Rewards Value: Not all points are created equal. For example, travel points often have higher redemption value when used for flights or hotels.

4. Stack Rewards with Vendor Promotions: Some credit cards offer bonus points when you shop with partner vendors. Combine these offers with discounts to increase value.

5. Monitor Expiration Dates: Keep track of reward expirations to ensure you redeem points before they lose value.

With careful planning, credit card rewards can become a secondary stream of value, helping to offset operational costs without increasing debt.

Conclusion

Building and managing business credit requires thoughtful planning and consistent effort. Establishing a solid credit history sets your business up for long-term growth by improving access to financing. Using business credit cards strategically for recurring expenses and earning rewards ensures you maximize their value while minimizing risk. By actively monitoring your business credit score and treating rewards points like cash, you’ll position your business to thrive with improved cash flow, better financing options, and reduced costs.