How To Build Your Business Credit

For each new small business, establishing credit is a crucial first step. It enables you to keep your business credit separate from your personal credit history, get the benefits of good business credit and demonstrate the separation between owners and the company.

Why Separate Credit Histories?

If you’ve set up a limited liability company (LLC) or corporation for your small business, keeping your personal and business credit histories separate can help you reduce the impact of unfavorable events on the other. For instance, if you have certain financial blunders that affect your personal credit history and score, they should not affect your small business credit provided you have established a clear distinction, and vice versa.

Why Separate A Business From The Owners?

Unless you’re running a sole proprietorship or a general partnership, you’ll need to show that your small business is separate from the owners. One of the most important advantages that corporations and LLCs provide to their owners is asset protection. Maintain this protection by demonstrating a clear separation between the owners and the firm on a regular basis.

8 steps To Quickly Build Business Credit

Here are eight important steps to quickly build business credit

1. Incorporate your business

Even if you are Incorporated when you read this, it’s worth mentioning. The business and the owner are legally the same in sole proprietorship and general partnerships. As a result, there can be no distinction between personal and business credit histories. Forming an LLC or incorporating a firm creates a legal entity which are separated from the owner(s).

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2. Obtain an EIN

An EIN (federal tax identification number) is a business’s equivalent of a social security number. It is necessary on federal tax returns and when opening a business bank account in the corporation’s or LLC’s name. Many larger firms additionally demand an EIN from their vendors in order to pay them for services rendered so as to comply with IRS standards.

3. Open A Business Bank Account

Create a business checking account in the name of the legal entity. Once the account is open, make sure you use it to pay the business’s financial transactions. If you do a lot of financial transactions with a business credit card (see below), make sure to pay the bill from your business checking account.

4. Establish A Business Phone Number

Have a distinct number for your business that is in your legal name, whether you use a landline, a cell phone, or VoIP. List that phone number in the directory so that it may be located. You can also use call center software for your business to help your interact and reach out to customers and potential customers quickly without stress.

5. Open A Business Credit File

Open a business credit file with each of the three credit bureaus: Experian, Equifax, and TransUnion. Credit reporting agencies is also known as credit bureaus.

6. Obtain Business Credit Card(s)

Obtain at least one business credit card that is not personally tied to you or any other owners. When thinking of a credit card for your business, choose a a company that reports to the credit bureaus.

7. Build A Credit Line With Vendors Or Suppliers

Collaborate with a number of vendors/suppliers (at least five, for example) to build credit for your business to use when making purchases. Request that your payment history be submitted to the credit bureaus.

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8. Pay your bills on time

It may go unspoken, but make sure you pay your bills on time. Late payments will have a negative Impact on your business credit, just as they will on your personal credit.

Benefits Of Having Good Business Credit

A small business might benefit from having good business credit in a number of ways, including:

  • Putting your company in a great position to negotiate more favorable payment terms with new vendors and suppliers.
  • Reducing the number of times you’ll have to pay for goods or services
  • Allowing you to negotiate with lenders and banks for lower interest rates and loan arrangements.

Conclusion

This article has answered the question “How can I build my business credit fast?”. Once you’ve built up a good business credit, monitor and safeguard it the same way you would protect your personal credit.

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