How does a fledgling business build credit?

Another good way to start in additional to a local bank is exploring opportunities with the local SBA office. As mentioned by Gary Honig above, businesses must be prepared with a plan and presentation. The plan and presentation should include as much historical financial information as possible and updated financial statements and balance sheets. Businesses can strengthen financial statements and balance sheets through quality accounts receivable management.
Accounts receivable management (ARM) outsourcing is a cost-effective business resource available to companies of any size in any industry or vertical market. ARM outsourcing allows businesses to focus on finding and securing new sales rather than executing previously rendered sales, providing significant opportunities for the business to focus on sales and revenue growth rather than maintenance of previous sales. Additionally, alternative financing for consumer sales is often available by cashing out existing receivables. Using existing A/R portfolios to secure funding is the quickest and easiest way for a small business to secure additional capital in lieu of attempting to qualify for a direct or traditional business loan.

Get your D&B account set up, make sure you update all the financial transactions for your business - find other partners who are currently on Dunns and Bradstreet and make sure you get them to reference you whether you are makign payments or receiving payments for your business. Get business equipment lease or financing so it can show up on your business credit. I can help with all of the above henri@bluestreetcapital.com

In Silicon Valley, where I toil, many startups are in "development stage" and have no revenues. Unless there are substantial Venture Capital backers, development stage credit is very hard to find and not really that useful. It makes no sense to me for a new firm that is development stage or early revenue and losing money to owe money that it has to repay. From my long experience with startups in my consulting practice, I advise folks not to borrow until there is cash flow from which to repay. The repayment cash can be from new investors, but one never knows whether anyone will invest in a new company until the money is in the bank.

In fact, I have seen instances where a development stage firm has borrowed, and the repayment obligation has become a hinderance to new investors putting money into the company. So the principle I follow is that debt capital should not fund operating losses.

Despite the above, an entrepreneur should have a good relationship with his/her bank as this funding may be appropriate for receivables or expansion funding once the business model is established. A bank that is experienced in the line of lending your firm represents is quite important, most banks will not make loans to firms where the business is not well understood. So in Silicon Valley, there are only a few banks experienced in technology lending, but it pays to have your account there.

There are also nonbank lenders; useful if you fit their program. But personal guarantees and the like may make this form of lending less attractive than it first appears.