The creditworthiness of a company can be determined by looking at the company’s independent credit history, which is referred to as business credit. It is not connected to a person’s personal credit and is determined by the credit history of the company itself as opposed to the personal credit histories of the owners or management of the company. It is essential for small businesses to have a good business credit score since it can assist them in gaining access to finance, securing better terms on loans, and establishing credibility with both clients and suppliers.
When opening a company credit account, there are a few essential actions that need to be taken, including the following:
Establish a legal business entity as the first step toward acquiring a line of credit for your company. The first step toward establishing business credit is to set up a legal business entity. You are able to accomplish this goal by registering your company as either a corporation, an LLC, or a sole proprietorship. This is important because it will help you keep your personal credit separate from the credit for your business.
Obtain a Federal Tax ID Number (EIN). Once you have created your business entity, the next step is to obtain a Federal Tax Identification Number. This can be done by applying for an EIN online. Your company has been given this one-of-a-kind number by the Internal Revenue Service (IRS), and it is used to identify your company for tax purposes.
Create a bank account for your business Once you have determined the legal structure of your company and received an EIN, the next step is to create a bank account specifically for your business. This will assist in separating your personal finances from the finances of your business and will make it much simpler for you to keep track of the costs associated with running your company.
Fill out an application for a D-U-N-S number: Dun & Bradstreet will provide your company with a D-U-N-S number, which stands for a unique business identity number. It is used to determine who you are as a business and to track your credit history. The D-U-N-S number can be applied for at no cost and can be done so entirely online.
Develop trade lines You can begin to establish trade lines once you have established your business entity, obtained an EIN, opened a bank account for your business, and obtained a D-U-N-S number. Credit lines, also known as trade lines, are credit accounts that are set up with various customers and suppliers. Establishing a credit history for your company is made easier by using these accounts. Be ready to supply this information since a personal guarantee for the credit account may be required by some suppliers and dealers.
Obtain a credit card for your business. Obtaining a credit card for your business is another essential step in the process of establishing business credit. It is essential to make responsible use of the card and to make sure that the amount is paid in whole and on time each month. The establishment of a positive credit history for your company will be facilitated by doing this.
Maintain a close eye on your company’s credit rating It is essential to maintain a close eye on your company’s credit rating once it has been established. At the very least once a year, you should obtain a copy of your company’s credit report from each of the three major credit reporting agencies (Dun & Bradstreet, Experian, and Equifax) and review it to ensure that the information included within is correct.
Building your business credit can be aided by cultivating a network of contacts, which can be accomplished through networking. Participate in networking events, sign up for membership in professional groups, and make connections with other entrepreneurs in your field. These contacts may prove to be useful tools for developing trade lines and constructing your company’s credit history.
Be prepared to give financial statements: Lenders and suppliers that are contemplating granting credit to your company will want to examine financial accounts, such as balance sheets and income statements. Verify that the information contained in your financial statements is correct and up to date.
Be patient: establishing a good credit history for a company takes time and work. If you are unable to obtain credit right away, use patience and do not allow yourself to become disheartened. You will eventually be able to gain access to the finance you require in order to expand your business if you continue to work toward building your credit history.
Building a good credit history for your business is an important step for any small business that wants to get financial backing and prove itself to both customers and suppliers.