Immigrant-owned businesses power the American economy.
They create jobs, build communities, and provide essential products for citizens across the nation, all while representing a fraction of the total population.
What’s the secret to their success? They have strong business credit.
In this article, we’re going to explain what business credit is, how it works, and why it’s so vital for entrepreneurs and small business owners.
More importantly, we’ll show you how to boost your business credit (while enhancing your profitability).
But before we get into business credit, let’s start with an overview of credit itself.
Credit: A Brief Review
Credit is an indispensable financial tool.
It’s the ability to borrow money and repay it by a certain date. As you know, credit products come in many forms, including auto loans, mortgages, and yes, credit cards.
But credit is more than a lump sum of cash. It’s an agreement with specific terms and rates tailored to your unique credit profile.
Those details are determined by two factors: the lender and your credit report.
Credit Reports and Credit Scores: Explained
When you apply for a credit product, lenders thoroughly review your credit report.
This statement contains the full breadth of your loan history and the status of your credit accounts—new and old.
When lenders review your credit report, they’re assessing your “creditworthiness” (i.e., your ability to repay debts).
Your success rate is often presented as a credit “score,” which ranges between 300 and 850.
Generally speaking, the higher your score, the better your loan products (and rates).
How Business Credit Works
Now that we’ve covered the fundamentals of credit, let’s apply it to the business realm.
Business credit is the metric lenders use to assess your company’s creditworthiness.
With a strong business credit profile, entrepreneurs can access working capital through products like a business line of credit, a term loan, or a small business credit card.
When used strategically, these products can help enhance your company’s credit profile.
As your credit profile improves, so will your access to more compelling loan products.
Business Credit vs. Personal Credit
As we’ve discussed, business and personal credit are similar (but not the same).
For example, all business credit information is reported to specialized credit bureaus, including Dun & Bradstreet, Experian Commercial, and Equifax Small Business.
And while your personal credit score generally ranges from 300 to 850, your business credit score scales between 1 and 100.
Though the details are distinct, the principles of “good credit” are similar for both: responsible loan management improves credit, while irresponsible management harms it.
Important: While your business and personal credit profiles will ultimately be kept separate, they’re not mutually exclusive—at least not in the application phase.
Here’s why: when you apply for a business credit product, some lenders may review your personal credit history, especially if it’s your first time applying for a business loan product.
That’s why it’s so important to carefully effectively manage your personal finances and always repay debts on time.
Once you have established your business credit history—and after you have developed a trusted relationship with a particular lender—your personal credit history will play a less decisive role in your access to working business capital.
Importance of Business Credit for Immigrant Businesses
According to recent studies, nearly 44% of Fortune 500 companies were founded by immigrants or their children.
While immigrants represent just 13% of the population, they comprise almost 22% of all small business owners in the United States. In fact, immigrant business owners generate over $1.3 trillion in total annual revenue.
Such dominance would not be possible without strong business credit—the tool that enables entrepreneurs to get financing and grow their companies.
Business credit also empowers business owners to purchase equipment and machinery, to streamline operations and payroll, and to make essential renovations and upgrades in an increasingly competitive market.
Nevertheless, building business credit can seem daunting—especially for recent immigrants.
In some cases, the desire to succeed can force hasty financial decisions.
While it may seem tempting to do, avoid funding your business ventures with personal financial tools. That includes your credit cards, your home equity, or loans from family and friends.
While such resources might appear practical, they could quickly endanger your personal credit and assets.
That’s why business credit is such an important tool for entrepreneurs. It separates your personal and business finances, and it provides far more funding than personal credit can match.
Plus, it positions you to improve your business credit profile, as we’ll discuss below.
6 Tips to Improve Business Credit
Though the financial world may be complex, it’s not mysterious.
In fact, the inner workings of business credit are well known, including the following six ways to help improve it.
Note: While the first two tips pertain to new business owners, the latter four are useful for business owners of all experience levels.
1. Establish Your Business
Before you set about bettering your business credit, make sure your business is fully established.
If you haven’t done so already, you’ll need to decide on one of four common business structures: a proprietorship, a corporation, a partnership, or a limited liability company (LLC).
Once you create a legal business name (and establish a business phone number), you’ll need to officially register your business with your Secretary of State.
After that, you’ll receive your employer identification number (EIN), which is what the government uses to identify your business.
Later on, your EIN will be used to file taxes, to apply for business licenses, and to open/access credit products.
2. Open a Business Bank Account
Now that you’ve set the foundation for your firm, it’s necessary to open a business bank account.
This accomplishes two things: first, it officially separates your business and financial expenses.
Secondly, it establishes a working relationship with a banking partner—a relationship you’ll rely upon for many years to come.
After all, your bank will become your point of contact for accessing working capital (and other credit products) to help fund your business venture.
3. Consider a Small Business Credit Card
The financial benefits of a small business credit card are undeniable.
You’ll receive fast access to capital, yo