If you own and operate a business of some kind and have a need for capital to help your business grow or to take advantage of profitable opportunities as they present themselves, then establishing business credit is very important. Let me show you some ways to get started on how to establish business credit.
Existing businesses may have already established some sort of business credit for their company. Many new businesses may be in the research stage of trying to find out how to establish business credit and lines of credit for their company. This article will be more geared for the newbie trying to develop a business credit file with lenders who can provide, net30 terms, loans, credit cards and business lines of credit. Commercial mortgages are available to established companies with extensive business credit files in good standing.
In order to secure business credit it will be necessary to establish a corporation in the state that the business is located in. There is debate whether to be an LLC, C-corp or S-corp. The type of corporation you need should be discussed with a CPA or an attorney experienced in these matters. No legal advice is presented here in this article. This is only an illustration to get you started. I will briefly explain how I established business credit with my company without this article turning into a book!
After doing research on building business credit for my local business, I decided to form a C-corp. Lenders prefer them anyway. There are some tax consequences to C-corps, but I accepted them in a trade off to achieve business credit cards, small business lines of credit and business loans for my company.
Once your new corporation is filed, fees paid and your Secretary of State has approved everything… Congrats on the birth of your new company! It is a separate entity. It is not you, but you own it via shares. A corporation can do almost anything except get married! Since it is its own separate entity, it is able to establish and apply for business credit, amongst other things.
Before applying for business credit, your company will need a Employer Identification Number (EIN). Kind of like you, a person getting a social security number. This EIN number will follow the business. When the business starts making money, you be liable for paying taxes to your state government and the IRS.
For best results when applying for business credit is to establish a location and address. You will need that information for loan applications. Plus you will need a business telephone. Not a virtual number. A real business has a real location (address) and a real telephone number and your business credit lenders will verify this. I do not recommend anything ‘virtual’. Proceed at your own risk.
Dun and Bradstreet is the official business credit bureau. You can contact them and let them know about your business, in order to establish a business credit file. Sometimes they may find out about you by checking the SOS records of each state. Once you establish a new business credit file, keep it in good standing always. Add new business lines of credit when you are able to.
Getting a car loan or buying commercial property is not going to happen when you first start building a new business credit file for your company. First you need to get some small credit accounts established like terms NET30. Get some of these accounts from merchants who offer them and report to D&B. Buy something from the merchant and pay back what you bought so it shows utilization of the credit.
Once your business credit history starts building up, your company could be eligible for some business credit cards or small lines of credit. A quick search on the internet will provide you with the latest places to apply for these types of accounts.
So as you can see it will take time and patience to establish a good business credit file. Once your business is incorporated start with small business credit accounts and work your way up to bigger types of credit. If you know of other business owners in your area, ask them where they apply for business credit. I hope that some of these tips will get you off to a good start on how to build business credit.