Business credit is a separate credit history that is used to evaluate the creditworthiness of a business. It is separate from personal credit and is based on the credit history of the business rather than the credit history of the business owners or managers. Having a good business credit score is important for small businesses as it can help them access financing, secure better terms on loans, and establish credibility with suppliers and customers.
There are a few key steps to take when starting a business with business credit:
Establish a legal business entity: The first step in establishing business credit is to establish a legal business entity. This can be done by registering your business as a corporation, LLC, or sole proprietorship. This is important because it will help to separate your personal credit from your business credit.
Obtain a Federal Tax ID Number (EIN): Once you have established your business entity, you will need to obtain a Federal Tax ID Number (EIN). This is a unique number assigned to your business by the IRS and is used to identify your business for tax purposes.
Open a business bank account: Once you have established your business entity and obtained an EIN, you should open a separate business bank account. This will help to separate your personal finances from your business finances and will make it easier to track your business expenses.
Apply for a D-U-N-S number: D-U-N-S is a unique business identification number that is assigned by Dun & Bradstreet. It is used to identify and track your business credit history. Applying for a D-U-N-S number is free and can be done online.
Establish trade lines: Once you have established your business entity, obtained an EIN, opened a business bank account, and obtained a D-U-N-S number, you can start to establish trade lines. Trade lines are credit accounts that are established with suppliers and vendors. These accounts help to establish a credit history for your business. Some suppliers and vendors may require a personal guarantee for the credit account, so be prepared to provide this information.
Get a business credit card: Another important step in establishing business credit is to get a business credit card. It is important to use the card responsibly and pay the balance in full and on time each month. This will help to establish a positive credit history for your business.
Monitor your business credit: Once you have established your business credit, it is important to monitor it regularly. You should check your business credit report from the three major credit reporting agencies (Dun & Bradstreet, Experian, and Equifax) at least once a year to make sure that the information is accurate.
Network: Building a network of contacts can help to establish your business credit. Attend networking events, join professional organizations, and connect with other business owners in your industry. These connections can be valuable resources for establishing trade lines and building your business credit.
Be prepared to provide financial statements: Lenders and suppliers will want to see financial statements, such as balance sheets and income statements, when considering extending credit to your business. Make sure your financial statements are accurate and up to date.
be patient: Building business credit takes time and effort. Be patient and don’t get discouraged if you are not able to secure credit right away. Keep working on building your credit history and eventually, you will be able to access the financing you need to grow your business.
In conclusion, building business credit is an important step for small businesses looking to secure financing and establish credibility with suppliers and customers.