When starting a small business, the owner must begin to establish business credit separately from personal credit. Business credit is calculated independently of private credit and offers significant benefits. With business credit, a profitable small business owner can apply for a loan and apply for a credit card. But if the company does not have a credit profile, the banks will not even consider borrowing money or offering a line of credit. Business credit origination can take up to two years but is an integral part of a small business's growth and development.
Establishing business credit is an essential step for any small business. It helps you:
With a separate business credit history, it is possible to minimize the effect that an adverse event on one might have on the other. For example, if you have some false financial steps that affect your personal credit history and credit score, they will not affect small business credit if you make a clean separation and vice versa.
Unless your small business operates as a sole proprietorship or partnership, you must demonstrate that the business is distinct from the owners. One of the main benefits that limited liability companies and corporations offer their owners is the protection of their personal property. Keep this protection in place by continually showing a clear separation between the owner and the company.
Incorporate the business
In sole proprietorships and partnerships, the business is legally the same as the owner; therefore, it is not possible to separate the credit history of the team. The creation of a company or the setting up of LLC creates a company legally separate from the owners.
Get a Federal Tax Identification Number (EIN).
EIN is virtually a social security number for a business. It is mandatory for federal tax returns, and you must also open a bank account in the name of the company or LLC. To meet the requirements of the IRS, many large companies also need an EIN from their suppliers to pay for their services.
Open a corporate bank account
Open a business checking account for your company. Once open, pay for your company's financial transactions from this account. If you use a business credit card for many financial transactions, you should pay the credit card bill from your business checking account.
Get a business phone number
If you use a landline phone, mobile phone, or a VoIP phone, you should have a separate number for your company and in the company name. Enter this number in the directory so it can be found.
Open a business credit file
Open a business credit file with three corporate rating agencies: Equifax, Experian, and TransUnion.
Get business credit cards
Get at least one business credit card that is not related to you or other personal owners. Choose a business credit card from a company that notifies the credit reporting agencies.
Establish a line of credit with sellers or suppliers
Work with at least five suppliers and vendors to create a credit to use for your business when you make purchases with them. Ask them to report the payment history of the credit reporting agencies.
Pay your bills on time
Maybe that should not be said, but pay your bills on time. Like your personal credit, late payments will negatively affect your business credit.
A right business loan can offer many benefits, including:
Once you have established and developed good business credit, be sure to monitor and protect it as you do with a personal loan.
Check all business licenses or authorization requirements and prevent permits and permissions from expiring. Keeping permits up to date works to generate credit because it shows that you are seriously interested in the business.
Valderas Financial Solutions LLC