Want to open the door to more capital funding options?
Tired of relying on personal credit for all your funding needs?
Establishing business credit could be the answer. Just as strong personal credit can open doors to low-cost borrowing, establishing business credit can offer the same benefits.
According to the Federal Reserve, 45% of small business owners looking for a loan receive a rejection letter due to their credit score. Nonexistent or poor business credit can be costly to business growth.
A few of the benefits of good business credit include:
- More favorable payment terms from suppliers
- Lower insurance premiums
- Less need to prepay for products and services
- Fewer borrowing costs through reduced interest rates and better terms and conditions from lenders
Establishing small business credit can provide a separate credit history from personal accounts. Detaching business and personal credit can also limit the impact of negative events and prevent the commingling of funds. You will maintain a record of business transactions independent of personal expenses, potentially giving you more tax deductions and easier accounting of business costs.
Strong credit in the business name can increase your ability to get a loan and attract more business. Potential customers, partners, and suppliers, often check your business credibility through your business credit score and report.Even with poor personal credit, you can establish credit in the business name and gain access to funding. The 5 Steps to Establishing Business Credit Include the Following:
Incorporate the Business. Business incorporation includes getting an EIN, opening a business account, and having a dedicated phone number in the business’ name.
Obtain A Federal Tax Identification Number or EIN, which is comparable to a social security number for businesses. You will file business taxes and manage expenses as a business.
A Business Account in the legal business name will help establish the business. Order checks and pay business expenses from this account.
Dedicated Phone Number. Regardless of whether you work out of your home or in an office, use a landline or cell phone, have a separate phone number in the name of the business.
Develop A Line of Credit with Suppliers. Suppliers or vendors might be the first to extend credit. Ask the companies you buy from to provide credit or trade lines. Working with at least five suppliers will establish credit for the company, provided they report payment history to the credit bureaus.
Get A Business Credit Card. Nearly all business lenders will require a personal guarantee for business debt. However, not all credit cards report business activity on your personal credit. Begin with companies that only report to business credit companies.
Open A Business Credit File. Open a business credit file with Dun & Bradstreet Paydex, Experian, and Equifax.
Manage Your Business Credit.Taking care of business credit is similar to maintaining personal credit. Make payments on-time and manage credit limits effectively. Late payments and too much debt can negatively affect your score.
Establishing business credit can help your business grow. By establishing business credibility, through business credit, you can grow your business and increase your access to business funding options