How to Build Credit for Your Business
The first and the most important step for establishing your business credit would be to separate your business credit from your personal one. It will minimize the risk of a personal credit history having a negative effect on the business credit.
If you are not running your business as a sole proprietorship or as a general partnership, you have to establish a clear separation of the business affairs from personal activities.
- 1. Incorporate your business
Incorporating a business or setting up a Limited Liability Corporation legally separates a business from its owners, protecting the business credit from consequences of bad personal credit history of the business owner. And more importantly, it provides the business owner an umbrella protection as long as there is no commingling
- 2. Obtain EIN
EIN – a federal tax identification number, a social security number for your business. You are required to have this number for federal tax filings and to opening bank accounts in the name of the corporation or LLC. An EIN number is also required by many corps prior to paying out for services.
- 3. Open a business bank account
Create a separate business account under the name of your company and make sure that all financial transactions of your business are done through this account.
- 4. Get listed with the business credit agencies
Getting your company listed with one or more of the business credit reporting agencies such as Dun & Bradstreet will make the process of obtaining and maintaining good credit so much easier. Plus, it’d be good if your business credit card is from a company that resorts straight to one of those agencies.
- 5. Create a line of credit with vendors/suppliers
Working with at least 5-7 vendors and/or suppliers that offer you a line of credit or financing on your purchases will help establish credit for your company. You may also ask them to report your payments to the business credit agencies.
- 6. Be consistent with your payments
Pay all your bills on time. Business credit will suffer from late payments just as personal credit does.
Good business credit has multiple benefits:
- New vendors and suppliers are more willing to work with businesses that have a good credit history;
- Banks and lenders will generally offer you better interest rates and lower fees;
- It will give you more flexibility in negotiating payment terms with your vendors.
Once your established your business credit, make sure to monitor and maintain it just as you protect and monitor your personal credit. We advise you to Check all business credit reports diligently and look out for any inaccuracies.