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As a new small business owner, one of the most important things you can do for your business is to start building credit for your business. As you work on building your personal credit (if needed), it’s time to start building your entity’s credit. The following eight steps are simple and well recognized, and they will get you access to lines of credit for your business. Know that you are not reinventing the wheel and that there are no shortcuts. If you follow the process outlined below, get help as needed, don’t give up, and be patient, you’ll get credit for your business.
Here are the eight steps advocated by legitimate industry experts:
1. Legitimize your business. You must have a lucrative business — something that is truly a Business and not just a hobby or a hobby. If you’re going to work hard to build business credit, have a plan to use it. This is obviously a key to also benefit from tax strategies.
2. Form an entity. Form an S corp or limited liability company (LLC) that can evolve into an S corp and get an Employer Identification Number (EIN). You will need a formal entity and will want to create a plan for longevity and success in building credit. If you already have an entity, even better. You don’t need to start with a new entity unless for some reason you’ve tried to create business credit before and your business has a bad payment history and bad credit.
3. Get a D&B number. Often referred to as a DUNS number, you will need this number as it will become the basis of your Paydex score. Similar to a personal FICO score, a Paydex score is your business credit scoring system. To start this process, register your business and its EIN.
4. Consider hiring a business credit coach and educating yourself. There are honest, affordable services that can do the detailed work of educating you about the credit building process. This work includes, among other things, exhaustive monitoring and technical elements that are tedious, such as sending letters to credit bureaus and creditors to remove items from your personal credit score. They can also provide resources and business and credit card listings that are generally easier to obtain for your business. Finally, they will help you learn all you can and avoid pitfalls.
5. Open supplier and trade lines of credit. Apply for a line of credit from Home Depot, Staples, Verizon, Office Depot, or other providers under your business name, then start using those cards and paying for them on time. You may be rejected initially and need to personally co-sign for some of these lines of credit, but that’s okay early in the process. Relying on your credit coaching company during this process is crucial.
6. Apply for a business credit card. When the time is right, after By creating a credit history and a credit score for the business through the previous steps, you can start applying for Visa, MasterCard, and American Express cards.
7. Make sure your creditors report to D&B Corporate Experian and Business Equifax, the business credit bureaus. Track your business’s credit rating and make sure your creditors are submitting their credit reports to your business on a regular basis.
8. Adopt good habits. Always make timely payments and use some of the same principles of building a good personal credit score with your business credit score.
As you develop your business credit, creditors will examine the stability and income potential of your business. Remember, your goal is to start a business and use the credit you work so hard for to positively impact your business. Keep an eye on the ball and present a business separate and distinct from yourself. Have a business website, phone number, answering service (if needed), and separate checking account. Complete your tax returns on time and focus on creating legitimate income. Legitimate business credit will follow a legitimate business model.