Getting Financed: How to Establish Business Credit


Are you aware of all of the advantages associated with having good credit? Having good credit allows you to arrange better payment conditions with your suppliers and minimize the number of times you will need to prepay for business-related services or supplies. It also facilitates better interest rates and credit terms with your bank. Given the necessary costs associated with starting a business, it’s imperative to have good business credit to give your company the best chance of surviving.

Good business credit can help your business beyond your immediate start-up costs. Since potential customers and business partners can see your business’s credit rating, having good credit will help you attract new customers once you’re operating steadily. Here are a few ways to establish business credit to reap these benefits.

Separate Business and Personal Finances

It’s recommended that you incorporate your business. Having “Inc.” or “LLC” after your business name establishes the business as a separate entity. This means that, for the most part, you will not be personally liable if your business were to fail.

Get on the Map

Legitimizing your business is a necessary step in establishing good business credit. One way to do this is to get a Federal Tax Identification Number. This number, also known as an EIN, is easy and free to obtain from the IRS. If you’re going to establish your business as its own entity, you will need an EIN in order to file taxes for your business, buy and sell with large companies and open a bank account in your business’s name.

On that note, opening up a bank account for your business is another way to put your business on the map. Having a bank reference is essential to establishing good credit and should be done as soon as possible. Lenders want to see business bank-account data, so the longer you have a good relationship with your business’s bank, the easier it will be to obtain loans with favorable conditions. This will further demonstrate a separation of personal and business finances, as long as you’re meticulous about only using your business’s bank account for all business-related purchases or investments.

Most importantly, seek credit in your businesses name early.  It is never too early to establish your business credit history.  The fastest way to do that is to take out a loan.  At first, your business may not qualify for the loan without your personal guarantee but getting the loan in your businesses name is a major leap forward.  Too many small business owners leverage personal credit without taking the additional step of associating the financing with their business.  Skipping this step will only delay your businesses access to future financing. Take the time to get credit in your businesses name now. Establishing business credit takes time, so do it in the early days and you’ll smooth the way to future growth capital.

Finally, obtain a business phone number in your business’s name that is separate from your personal number. Your number can be a landline, VoIP or cell phone, and needs to be listed publically.

Open a Business Credit File with All Three Bureaus

Experian, Equifax and Dun & Bradstreet are the three business-reporting agencies with which you need to associate. Business credit scores are not as formalized as personal credit scores. Each credit bureau uses different standards to determine the health of your business’s credit and different lenders might only report to certain agencies.

Accordingly, by registering with all three agencies, you will be covered regardless of which agency your lenders, customers and vendors refer to when deciding whether to do business with you.

Establish Lines of Credit with Vendors and Suppliers

Many suppliers extend credit to business entities with which they regularly do business. If you have a good relationship with your vendors and suppliers, they will ease up on repayment requirements, allowing you more time to pay off debts. Remember, however, that just as it’s important to pay off debts with your bank in a timely fashion, you also need to pay off your obligations to your suppliers and vendors. If you do not, your business relationships and your entity’s good name will suffer as a result.

Lastly, it’s important to ask your suppliers and vendors to report your payment history to credit-reporting agencies. They are not required to, but if they report this information, it will give your overall credit score a valuable boost.

Conclusion

Without proper financing, your business will be operating at a disadvantage. Incorporating, registering with banks, and reporting agencies, co-signing with your business early on and establishing positive relationships with vendors and suppliers will do a lot to establish a credit foundation for your business. Following these guidelines to establishing good credit will ensure access to more funds in the future, and increase your business’s financial success.

Please don’t hesitate to reach out to our Funding Specialists at Currency Capital. We’re always available for a call at 877-358-4595, and would love to answer your questions and guide you toward the best financing option for your business.


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