When you register a small business, you can choose a structure that shields you from the company’s liabilities, such as debts and court judgments. However, many small business owners find it hard to secure business financing without providing a personal guarantee. As a result, they end up personally liable for their business’s debts anyway. But what if you want to build business credit without using your personal credit at all? Good news—it is possible. Read on for a step-by-step guide that will show you how.
What It Means to Build Business Credit Without Using Personal Credit
U.S. residents are often very familiar with personal credit because it’s an integral part of everyday life. The three consumer reporting agencies, TransUnion, Equifax, and Experian, create profiles tied to the Social Security Numbers (SSNs) of Americans. As you open and use credit accounts, your account activity is reported to the various credit bureaus. The credit bureaus then report how you manage those accounts on your credit reports. Additionally, your overall creditworthiness is summed up through various credit scoring models, such as FICO and VantageScore.
Business credit works similarly, but is designed to assess and report on the creditworthiness of business entities. Instead of being tied to SSNs, reports are tied to the Employer Identification Numbers (EINs) of businesses. Further, the main business credit reporting companies are Dun & Bradstreet, Equifax, and Experian. As your business opens credit accounts that report to one or more of the business credit reporting companies, those agencies create reports and scores that review how well your business manages its accounts.
Building business credit without using personal credit means that you’re opening business credit accounts with lenders that don’t require personal credit checks or personal guarantees. As a result, you’re able to get approved based on the eligibility of your business entity alone—often due to providing collateral or proof of revenue.
Why Separating Personal & Business Finances Matters
Separating business and personal finances is important on a few fronts.
First, it’s required when you want to protect yourself from personal responsibility for business liabilities. When a business is an independent entity, it’s expected to operate that way financially. That means it should have its own bank and credit accounts, which house all of the business’s financial activities. If a business is sued and the court finds the owner has been mixing business and personal finances, the judge can deem that the corporate veil has been pierced. When that happens, the owner may be held personally responsible for the business’s liabilities.
Beyond corporate veil concerns, keeping business and personal finances separate leads to clean financial records. You can easily pull records and rest assured that they only reflect the financial activities of your business. You won’t ever have to thumb through personal records for business income and expenses, or vice versa. This is important for accurate bookkeeping, securing credit, and pursuing investments or partnerships.
Overall, separating business and personal finances reduces the likelihood of accounting mistakes, builds credibility with third parties, and reduces liability risks. It can also preserve your personal credit, ensuring it’s available for personal purposes—such as financing a home, a vehicle, or college expenses.
Step 1: Getting Your Business Set Up (Entity, EIN, Business Address, & D-U-N-S)
The first step to building business credit that doesn’t rely on personal credit is to establish your business as a distinct legal entity. To do so, register it on the state level as a limited liability company (LLC), a limited liability partnership (LLP), or a corporation.
The next step is to get an Employer Identification Number (EIN). An EIN establishes a formal identity for your business and gives you a tax ID number. You can request an EIN online for free using the IRS assistance tool.
You’ll also need to set up a dedicated business address and phone number. If you don’t have a physical location, you can set one up through a virtual office service provider. These will allow you to publicly share contact details without exposing your personal contact information.
Lastly, check if you have a D-U-N-S number with Dun & Bradstreet. Dun & Bradstreet. scans public registries and assigns D-U-N-S numbers to many companies, so you may be in the database without knowing it. If you’re not, you can easily request a D-U-N-S number for free from the Dun & Bradstreet website.
Step 2: Establishing Business Bank Accounts & Financial Infrastructure
The next step is to open a dedicated business bank account. Doing so creates a home base for all of your business’s financial activities, keeping them separate from your personal transactions. Choosing an account like Lili, which integrates helpful accounting tools, can make it easier to stay on top of tedious tasks—like categorizing expenses, tracking tax write-offs, and managing cash flow.
Step 3: Choosing Trade Vendors & Suppliers That Report to Business Bureaus
Once your business is set, it’s time to start opening business credit accounts that move the needle. One of the first places to look is for vendors and suppliers that offer net payment terms. These credit accounts allow you to delay payment for a certain amount of time, such as 30 or 60 days. However, offering net payment terms alone isn’t enough.
The vendor or supplier you choose also needs to report its credit accounts to at least one of the business credit reporting companies Dun & Bradstreet, Equifax, or Experian). If it doesn’t, the credit account won’t impact your business credit. Once you find a good fit, be sure to make all your payments on time so the tradeline has a positive impact on your business credit report.
Step 4: Choosing Business Credit Cards & Charge Cards With No Personal Guarantee
Another way to establish tradelines on your business credit reports (without using personal credit) is to open business credit or charge cards. However, they need to report to the business credit reporting companies and can’t require personal guarantees.
While these can be hard to find, they do exist. For example, the Lili BusinessBuild Credit Card is a secured business credit card for BusinessBuild members that reports to Dun & Bradstreet monthly. It doesn’t require a personal credit check or personal guarantee, and minimum credit limits range from $200 to $50,000. Your security deposit acts as collateral and is held in your Lili checking account. When starting to build credit, aim to keep at least three tradelines open for at least six months. They can be a mix of vendor accounts, supplier accounts, and business credit cards.
Step 5: Monitoring Your Business Credit: Agencies, Reports, & Accuracy
Once your tradelines are open and you’re in the rhythm of making all your payments on time, you’ll want to keep an eye on how your business credit is developing. Here’s how you can do so with the three main business credit reporting companies:
- D&B Credit Insights: Dun & Bradstreet offers small business owners three levels of credit monitoring: Free, Basic for $49 per month, and Plus for $149 per month.
- Experian: Experian offers the Business Credit Advantage program for $199 per year (about $17 per month), which grants you real-time alerts and unlimited access to view your scored report.
- Equifax: Equifax offers small business credit reports for $49.95 per report and invites you to reach out if you’re interested in business risk monitoring.
You can also look to third parties for business credit monitoring. For example, if you sign up for the Lili BusinessBuild Program, you’ll be able to track your Dun & Bradstreet credit profile 24/7 and get real-time alerts when your profile or scores change.
If you happen to find any errors as you’re monitoring your business credit reports, contact the reporting company right away to file a dispute. Processes can vary by company, but all will typically investigate the dispute and update your report upon validation of the error.
Common Challenges Building Business Credit Without Using Personal Credit (and How to Navigate Them)
As you work on building business credit independently, you may encounter a few challenges. First, many vendors and suppliers don’t report payment activity to business credit reporting companies. Don’t assume yours will. You may need to shop around a bit to find one that provides a good deal on the products or services you need, while also offering net payment terms and reporting to the business credit reporting companies.
Second, qualifying for business credit can be difficult when you’re not willing to sign on as a personal guarantor and don’t have business credit. Start with no-personal-guarantee business cards and vendors/suppliers that report to business credit reporting companies. From there, you’ll have better luck with lenders offering secured loans. By providing collateral, you reduce the risk involved with lending to you.
How Lili Can Help: Tools & Features for Building Credit Separately
Building business credit without using personal credit can be hard to navigate, but you don’t have to do it alone. Lili’s BusinessBuild Program helps small business owners fast-track the process. The first step? Establishing your first tradeline. The program provides you with the BusinessBuild credit card—a secured business credit card that doesn’t require a personal guarantee and gets reported to Dun & Bradstreet each month. You’ll also be able to view key Dun & Bradstreet scores from your Lili dashboard 24/7, and receive real-time alerts so you know when something on your profile changes.
To provide additional support, the program also offers expert-led credit training, including live sessions, step-by-step guides, and personalized recommendations—so you can build a stronger business credit profile with confidence.
Summary & Action Plan
Ready to get started? Here’s a quick recap of the essential steps you need to take to build business credit without using personal credit:
- Register your business as a distinct legal entity (LLC, LLP, or Corporation)
- Get an EIN
- Set up a business address and phone number
- Get a D-U-N-S number
- Open a business bank account
- Open tradelines with vendors or suppliers that report to the business credit reporting companies
- Open no-personal-guarantee business cards with companies that report to the business credit reporting companies
- Monitor your business credit
At Lili, we make steps 4, 7, and 8 simple—combining business banking, credit-building, and accounting in one platform. Get started building your business credit with Lili today!
