For credit-savvy small-business owners, establishing a credit rating under their business’s name is a top priority. A creditworthy business shields its owners from liability for business debts, and makes the task of record-keeping and filing taxes easier.
Business credit also helps small-business owners avoid damaging their personal credit ratings by putting large business expenditures under their own names, which can distort their debt-to-limit ratios, making it difficult to qualify for mortgages or auto loans.
But, can you build business credit without a Social Security number? Obviously, once a business has an established credit file, financing options that do not rely on the business owner’s Social Security number will be available. But, what about the initial phase of building business credit? Can small-business owners avoid getting their Social Security numbers involved in building business credit while the business is still in its formative stages?
A Solid Foundation
Before attempting to build business credit, small-business owners need to get all of their ducks in a row, so to speak. They’ll need to get a Tax ID. They’ll also need to establish their business as a separate legal entity by organizing it as a corporation or LLC. The next priority should be to establish a business checking account, and to get a dedicated business phone line.
By registering with the business credit bureau Dun & Bradstreet, small-business owners can obtain a D&B D-U-N-STM number, which is a unique numeric identifier used by potential creditors to verify a business’s legitimacy and credit history. Getting a D-U-N-STM is another important step in building business credit.
Once a business is properly positioned to start building business credit, it can start to do so by prudently managing vendor accounts, equipment leases, and deferred payment plans offered by vendors such as Internet service providers. By paying these accounts off early, small-business owners can enhance their business credibility bit by bit.
At this stage, business loans and lines of credit are likely to require a personal guarantee, and thus, a Social Security number. But once a business has proven its ability to manage these entry-level accounts, other types of financing should become available without a personal guarantee.
What About Business Credit Cards?
Before the financial crisis, small-business owners had a lot more options when it came to small-business credit cards that did not require a personal guarantee. These days, such cards are relatively rare in the small-business sector. Some do exist, but it is not in the best interest of the credit card companies to advertise that fact. The bottom line when it comes to true business credit cards for small businesses is that if you do find one, you’ll need excellent business credit to qualify.