How To Build Business Credit as a Sole Proprietor in 2024

How To Build Business Credit as a Sole Proprietor in 2024

How To Build Business Credit as a Sole Proprietor in 2024

The easiest, fastest and most common way to start and run a small business in the US is as a sole proprietorship. This type of business operates without forming an LLC, corporation, or another type of business entity. 

The large majority of small businesses in the US operate this way, and while experts warn against the dangers, such as unlimited personal liability, this popular type of business can’t be ignored. 

Business owners who operate sole props will often encounter the need for a small business loan or financing, and that’s where business credit can be very helpful. Good business credit scores can help open up new financing opportunities.  

Here we’ll explain how to build business credit as a sole proprietor.

Can You Build Business Credit as a Sole Proprietor?

The short answer is yes. It is possible to establish a business credit history even if you operate your business without forming a legal entity such as a limited liability company (LLC) or corporation. Regardless of the type of business you run, this usually doesn’t happen automatically or overnight. 

Entrepreneurs often need to take specific steps in order to build a solid business credit rating. We’ll explain how to do that here. 

Choose Your Business Name

Choose your business name carefully; a good business name will be a valuable asset. It should not be in use by a competitor, and ideally you’ll want to secure the domain name and social media handles as well. A free business name generator can help you come up with ideas for your business name. 

You’ll want to register your business name with your state. This is usually done with a fictitious business name filing (also known as “doing business as” or “DBA”). 

Get an EIN From the IRS

An employer identification number (EIN) is a type of tax id number used by small businesses. (Think of it like your businesses’ Social Security number.) It may not be required for your sole proprietorship, but getting one can be helpful as you establish your business identity and business credit. 

Learn how to get a free EIN from the IRS here

Open a Business Bank Account Using Your EIN

While a business bank account isn’t required to build business credit, getting a business checking account can be a helpful step for separating personal finances from business finances. It helps business owners track business expenses and revenues for tax purposes.

It can also be helpful when applying for small business loans and financing, as many small business lenders require proof of business income. 

Make Sure to Register Your Business

Check with your state to find out the requirements for registering your business. You may need a business license, for example, or a sales and use tax license. As mentioned earlier it can also be a good idea to register your business name with your state. 

You’ll also want to get a D-U-N-S number from Dun and Bradstreet, one of the major commercial credit reporting agencies. This is D&B’s identification number for the business. Getting business tradelines — like the up to two tradelines included with Nav Prime — is the easiest way to get a DUNS numbers.

Get a Business Phone Line and Address

Whether it’s registering a business name or filling out a loan application, there are times you’ll need to list a business address and phone number so think through what you want to use ahead of time. 

It’s OK to operate your business from home (if that makes sense for your type of business) but you may want to open a PO Box or secure some type of business mailing address so you don’t have to disclose your home address to potential customers. 

Similarly, it’s a good idea to have a business phone number, even if it rings on your cell phone. Services like Sideline, Google Voice, or SmartLine can provide your business with a second phone number, and allow you to set a custom greeting and more. This will help ensure you always answer business calls professionally. 

Identify Your Industry Code

Businesses are often identified using industry classification codes: Standard Industrial Classification system (SIC) and North American Industrial Classification System (NAICS) codes. Research the proper classification code for your type of business so when you are asked for it on a loan application, for example, you’ll know what to use. 

NAICS codes and/or SIC codes may also appear on business credit reports. When you’re checking your own business credit report, make sure that any industry code that appears there is correct. 

Apply for Business Credit Cards

The key to a good credit profile, business or personal, is a track record of on-time payments. Not all companies report to business credit so you will want to do business with companies that will. 

A small business credit card, paid on time, can help your business build business credit as long as the card issuer reports to payments to business credit agencies. (Find out which credit card issuers report to business credit here.)

Most small business credit cards are available to sole proprietorships, including brand new businesses. It’s unusual for issuers to require proof of business revenues or to require a certain number of years in business. That means you can use one to establish credit even if your business hasn’t been around long. 

Most small business credit card providers will check the applicant’s personal credit report and a personal credit score, and good or excellent personal credit scores are often required. In addition, most cards require a personal guarantee. 

These cards can also be useful for managing cash flow, and many cards offer perks such as travel rewards or cash back. But interest rates can be high, so if you plan to carry a balance choose a card with a low interest rate. (Credit cards with 0% intro APRs can be useful for short-term financing.) 

Personal credit cards don’t build business credit, so it’s best to use them for personal purchases. 

Get Trade Credit With Suppliers

A great way to help build credit for your business is to do business with companies that will report payment history to business credit bureaus. Supplier credit accounts are often easy to get, and most vendors don’t check the owner’s personal credit history so  bad credit (on the personal side) may not be a hurdle. 

Most of these accounts express payment terms as net-15, net-30, net-60 etc. With a net-30 account, for example, your business has 30 days to pay the invoice. 

Get a list of easy net-30 vendors that help build business credit here

Get a Small Business Loan

Some small business loans, lines of credit, and equipment financing will help you build business credit. Check with the lender to find out whether it reports payment history to commercial credit. Then pay on time to ensure a positive payment history. 

Check Your Business Credit Reports 

Small business owners should regularly check their business credit reports to find out what information appears on those reports, and to look for opportunities to continue building business credit. 

It’s a good idea to review your business credit monthly. Mistakes can happen, and catching them quickly gives you time to address them. 

Nav Prime Can Help

Nav Prime gives you up to two business tradelines — one from your monthly Nav Prime payment and another with regular use of the Nav Prime Card*. These are sent to the major business credit bureaus to help improve your business financial health to access the funding options you need.

Additionally, you’ll also get all the details lenders see on your business credit reports to help you resolve inaccuracies and manage your business credit.

Be Patient and Persistent

Building business credit for sole proprietors is just one of the steps toward building a financially healthy business. Establishing creditworthiness takes time, but you can make progress if you stick with the process. As the saying goes, the best time to start was yesterday and the next best time to start is today. 

*Nav Technologies, Inc. is a financial technology company and not a bank. Banking services provided by Blue Ridge Bank, N.A., and Thread Bank, Members FDIC. The Nav Visa® Business Debit Card is issued by Blue Ridge Bank, N.A., and the Nav Prime Charge Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa cards are accepted. Your funds are FDIC-insured up to $250,000 through Blue Ridge Bank, N.A., Member FDIC.

This article was originally written on January 21, 2016 and updated on January 23, 2024.

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