Starting a business requires not only a solid business plan but also adequate funding. While personal credit can help in the initial stages, establishing separate business credit is crucial for long-term financial stability. Business credit enables you to access loans, secure favorable payment terms with suppliers, and build credibility in the market. If you’re wondering how to get business credit, follow these essential steps:
1. Separate Personal and Business Finances
One of the first steps towards building business credit is to separate your personal and business finances. Establish a distinct legal entity for your business, such as an LLC or corporation. Open a business bank account and obtain a dedicated business phone number and address.
2. Obtain an Employer Identification Number (EIN)
An EIN is a unique nine-digit number issued by the IRS to identify your business for tax purposes. You can easily apply for an EIN online through the official IRS website. This number will be essential for building business credit and filing taxes.
3. Register Your Business with Credit Bureaus
Register your business with commercial credit bureaus like Dun & Bradstreet, Experian, and Equifax. These bureaus collect and report business credit information. Establishing your business profile with them is crucial to building creditworthiness.
4. Open a Business Bank Account
Choose a reputable bank and open a business bank account. Maintaining a separate business account demonstrates financial responsibility and helps you track your business transactions easily.
5. Establish Trade Lines
Trade lines are credit accounts that allow you to purchase goods or services with deferred payment terms. Begin by applying for vendor credit accounts with suppliers who report payment history to credit bureaus. Regular, on-time payments will help you build a positive credit history.
6. Get a Business Credit Card
Applying for a business credit card is an effective way to build credit. Look for cards that report to business credit bureaus and offer favorable terms. Use the card responsibly, keeping your utilization low and making timely payments.
7. Obtain a Small Business Loan
Consider applying for a small business loan to establish creditworthiness. Start with smaller loan amounts and gradually build a solid repayment history. Ensure you make regular payments to demonstrate your ability to manage debt responsibly.
8. Leverage Your Personal Credit
If you’re just starting, you may need to rely on your personal credit to obtain business credit initially. Make sure you are managing your personal credit responsibly, as lenders may consider your personal credit history when evaluating your business’s creditworthiness.
9. Monitor Your Credit Reports
Regularly monitor your business credit reports to ensure accuracy and identify any potential errors or fraudulent activities. Promptly address any discrepancies with the credit bureaus to maintain a healthy credit profile.
10. Build Strong Relationships with Suppliers
Developing strong relationships with your suppliers can have a positive impact on your business credit. Timely payments and consistent business dealings can lead to favorable credit terms and increased credit limits.
11. Pay Bills on Time
Consistently paying your bills on time is essential for building good credit. Late payments can negatively impact your credit score and reputation with lenders, so prioritize timely payments.
12. Avoid Overextending Your Credit
While it’s important to utilize credit to build a credit history, avoid overextending yourself. Maintain a healthy credit utilization ratio by keeping your credit usage well below your available credit limit.
13. Diversify Your Credit
Having a diverse range of credit types can positively impact your credit score. Consider obtaining different types of credit, such as lines of credit, loans, and business credit cards.
14. Maintain a Positive Payment History
Consistently making payments on time is crucial for maintaining a positive payment history. Late payments or defaults can significantly impact your credit score and make it challenging to access credit in the future.
15. Use Business Credit Wisely
Having access to business credit doesn’t mean you should use it indiscriminately. Use credit wisely and only for necessary business expenses. Responsible credit usage demonstrates financial discipline to lenders.
16. Keep Business Financial Records Organized
Maintain accurate and organized financial records for your business. This includes keeping track of invoices, receipts, and financial statements. Organized records will help you during credit applications and audits.
17. Network and Build Strong Business Connections
Networking can open doors to potential business partners, investors, and lenders. Building strong connections within your industry can provide valuable opportunities for growth and access to credit.
18. Consult with a Financial Advisor or Credit Professional
If you’re unsure about the best approach to building business credit, consider consulting with a financial advisor or credit professional. They can provide guidance tailored to your specific business needs.
19. Avoid Personal Guarantee Whenever Possible
While it may be challenging initially, aim to secure credit without personal guarantees whenever possible. Personal guarantees tie your personal assets to your business debts, which can be risky in case of financial difficulties.
20. Incorporate Business Credit into Your Business Plan
Include your business credit-building strategy in your overall business plan. Demonstrating your commitment to building credit can instill confidence in lenders and investors.
21. Apply for a Business Line of Credit
A business line of credit provides flexibility and can be a valuable tool for managing cash flow. It allows you to access funds as needed and repay them over time.
22. Establish Strong Credit References
Obtain strong credit references from vendors, suppliers, or service providers with whom you have a positive payment history. These references can support your creditworthiness when applying for larger credit lines or loans.
23. Be Patient and Persistent
Building business credit takes time and persistence. Stay committed to your credit-building strategy, make timely payments, and maintain good financial practices. Over time, your creditworthiness will improve.
24. Review and Improve Your Credit Profile
Regularly review your credit profile and identify areas for improvement. Pay attention to any negative factors affecting your credit and take proactive steps to address them.
25. Utilize Credit Monitoring Services
Consider utilizing credit monitoring services that provide alerts and updates on any changes to your business credit. These services can help you stay informed and quickly address any potential issues.
26. Apply for a Business Credit Card with Rewards
Once you have established some credit history, consider applying for a business credit card that offers rewards. These cards often provide additional benefits like cashback or travel rewards, which can be advantageous for your business.
27. Seek Professional Advice for Credit Repair
If you encounter challenges or negative marks on your credit report, seek professional advice for credit repair. Credit repair specialists can help you navigate the process of removing inaccuracies or resolving disputes.
28. Demonstrate Stability and Growth
Lenders are more likely to extend credit to stable and growing businesses. Consistently demonstrate stability and growth through strong financial records, positive cash flow, and increasing revenues.
29. Research and Compare Business Credit Options
Before applying for credit, thoroughly research and compare different options available to your business. Look for lenders or credit cards that cater specifically to small businesses and offer favorable terms.
30. Keep Learning and Adapting
Lastly, continue to educate yourself on best practices for building and managing business credit. The financial landscape is constantly evolving, so staying informed will help you adapt and make informed credit decisions.
Conclusion
Building business credit is a gradual process that requires careful planning and financial discipline. By following the steps outlined in this guide, you can establish a solid credit foundation for your business. Remember, building business credit takes time, so be patient, monitor your progress, and make strategic credit decisions to achieve long-term success.