Businesses may have their credit history and credit scores in addition to the credit of the business owner. Building credit for your company can make obtaining a line of credit, a loan, or a credit card much more accessible. These accounts can then be utilized to borrow funds to aid in the operation and expansion of your company. Learning how to establish and maintain your credit is also an excellent idea. Because lenders may check the business owner’s credit before opening a new account, many small business owners believe their personal credit history is significant. However, before you decide to borrow money, think about the fees and the impact on your business. If you’ve been approved for a loan, that doesn’t mean you should take it. Keep in mind that you will be responsible for repaying the funds.
If you don’t know how the money would benefit your firm or how you’ll repay the loan, you might not want to take on debt. But if you think that the money will help your company make or save more money than the fees and interest will cost, it may be a wise move. You’ll need to create a legal business entity in this scenario, such as a corporation or a limited liability company. Then you’ll need to open accounts with companies that report your payment history to credit bureaus for businesses (such as on-time, ahead of schedule, or late bill payments). If you have a credit line or a credit card, merely using a little piece of it and paying it off regularly will enhance your business credit.
Your company’s strong credit history can help you qualify for more significant loan amounts and lower interest rates when borrowing money, save money on business insurance, and negotiate better deals with suppliers. You can use your credit to borrow money for your business if you don’t develop business credit. Your wealth and belongings may be jeopardized if you cannot repay the money borrowed on personal credit. Furthermore, using your credit for commercial purposes can make it more challenging to qualify for a personal loan, such as purchasing a car or a home. Depending on whether you rely on your business’s credit, your credit, or a combination of both, you can borrow money through a credit line, a loan, or a credit card.
1. Get your business up and running.
The first step is establishing the company as a sole proprietorship, corporation, partnership, or limited liability company. To gain the trust of vendors and the government, give your company a legal name and a business phone number. Once you’ve accomplished the essentials of your business, start opening accounts with vendors who report to credit bureaus. This will assist you in building your business credit file and establishing credit. This, like legally incorporating your company, alerts business credit reporting bureaus to your existence.
2. Register your business
Depending on your business, there are a variety of options. However, double-check that you’ve followed all of the secretaries of state’s procedures to ensure that your business is appropriately registered and established.
3. Get a hold of your Employer Identification Number (EIN) (EIN).
It is like a Social Security number for your firm; it’s how the government recognizes you. Your EIN is also required for filing taxes as a business throughout the year. After your company has been registered, you can request this number to receive a corporate ID number, which you can use to file taxes, open a business bank account, and apply for business licenses.
4. Establish a company bank account.
To begin the process of separating your business and personal finances, open a business bank account. Setting up this type of account can also help you get a company credit card and build a relationship with a bank, which will come in handy if you need a small business loan to expand your operations in the future.
5. Keep cultivating vendor relationships.
As your company grows and contracts for supplies and other business products are created, continue to establish and cultivate relationships with vendors. You develop credit when you pay on time or early with merchants who report to credit bureaus. Not every vendor reports to the same credit bureaus, and not every vendor reports to the same credit bureaus. Consider your company’s needs, then look into whether providers in that vertical file credregistersrts with the credit agencies.
6. Make use of the credit card issued by your company.
Opening, using, and paying off business credit cards is another way to develop business credit. Get a company credit card and use it every month once your bank account is set up and your firm is up and running. Discover which credit card is best for your business. Some credit cards may have features that are advantageous to certain types of companies. Remember that your credit limit may be low at first, especially if you’re just starting. As your credit score improves, so will your credit limit.
7. Make timely and frequent payments.
When it comes to building credit, just paying your bills is one of the most powerful tools you have. You show that you can repay your debts by paying them off on time. You may be able to raise your corporate credit score even faster if you pay your bills on time. This is the most fundamental step in credit development.
8. Be aware of credit card usage.
The use of credit is an essential factor in determining a credit score. To help you enhance your credit score, business credit cards, like personal credit cards, have a recommended usage policy. The total credit limit of a business owner should not exceed 30% of their total credit limit. This demonstrates to lenders that you are both financially responsible and capable of meeting your monthly minimum balance.
You may be qualified for low-interest business loans or lines of credit if you have good personal credit. Personal loans and credit cards are also choices, but it’s best to keep your business and personal assets separate unless you run a sole proprietorship. (However, keeping your finances separate can make tax preparation easier.)
Other options include merchant cash advances if you need money but want to work on your business and personal credit. However, carefully read the terms and proceed with caution — credit that does not require strong credit is typically expensive.
To manage a financially viable and healthy business, you must have a business credit score. It demonstrates to lenders and other companies that your organization is financially sound and can meet crucial obligations. It will not only help you with loans but will also allow you to avoid prepayment. A good credit score might help you drive down prices or get better interest rates and terms on financing packages from banks and online lenders as a negotiating weapon.