Other Credit Factors

A company's business credit rating is influenced by many factors. Payment history, organizational structure, length of time in business, and several other aspects are taken into consideration when financial institutions are considering whether to approve a business credit application.

Understanding these dynamics and taking proactive steps to enhance your company's standing can be the difference between building solid business credit or not. Avoiding legal action and upgrading your balance sheet appearance are the kinds of steps successful businesses can take to strengthen its creditworthiness.

Number of Years in Business

Simply by staying in business, you will improve the creditworthiness of your company. Lenders are reassured by the fact that you are conducting a business that is sound enough to sustain itself when the reality is that many small businesses fail within the first year. The longer your company is successful enough to generate enough income to successfully pay its monthly obligations and satisfy its customers, the better it looks to potential lenders.

While there is nothing you can do to increase the life of your business more quickly, it is important to understand that as a start-up company, the other components of business credit will weigh more heavily until you've been in business for 3 to 5 years or more.

Non-Financial Factors

There are several other factors that are used to evaluate your company's credit and reassure potential lenders that you are a solid business, including:

• Federal Employer Identification Number - For a variety of tax reasons, a business is required to have a separate tax ID number. Like a Social Security number for an individual, it is highly advisable for a business to have an Employer Identification Number (EIN).
• Business Location - While it is advantageous for a company to have its own location separate from the home of the owner, even a home-based business can build credit. Having a separate phone line and/or fax number will enable a business to have a presence in the yellow pages, which is something that many credit rating companies verify when conducting a credit analysis.
• Required Business Licenses - Every state and local municipality has requirements about the licenses and permits that companies doing business in their region are required to have. If the company is a sole proprietorship, it should establish the company name by filing a DBA ("Doing Business As") form. For example, if Steve Smith has a computer business that he operates under the name CompuService, from a legal perspective the person and the company treated the same. However, since the company's customers and vendors deal with the company through its DBA, other companies will report payments to the credit bureaus under that name.
• Formal Business Entities - When a company takes steps to establish itself as a corporation or limited liability company (LLC), potential lenders may consider them to be better credit risks than sole proprietorships and partnerships which are much less formal business entities. While sole proprietorships and partnerships are not prevented from applying for business credit, the more fully established the company is, the more likely it is to receive credit.