Access to business credit can be helpful for entities that are hoping to achieve growth and longevity. Whether your company operates as a limited liability company (LLC) or corporation, your business has the ability to establish a credit history that is completely separate from yours as an individual. Here's how to get started with building credit for your business:
Structure and Documentation: Register Your Business and Apply for an EIN
In order to establish business credit, your company must be a distinct legal entity. This requires that you select a business structure such as an LLC, LLP, or corporation (sole proprietorships don't create a separate business entity). After you form your business entity correctly, you'll need to register your business properly. When your business is registered, it is time to apply for your EIN (federal tax ID). This is a nine-digit code assigned to your business which you will use for tasks like filing company tax returns, opening business bank accounts, applying for licensure and permits, and applying for business credit.
Open a Business Bank Account
After you have a federal tax ID, it is wise to open a business bank account for your company. This will help to create a clear separation between your business and personal expenses. Your brand's banking behaviors and relationships play an important role in your company’s funding potential. Your business bank account serves as a bank reference on credit applications while providing key data that lenders use during a funding review.
Establish Credit with Vendors and Monitor Reports
One of the easiest ways to build business credit is to apply with vendors and suppliers that your business actually needs. During this process, it’s important to select vendors that actively report to a business credit reporting agency. As you purchase supplies, inventory, or other materials on credit for your company, those payments are reported to business credit reporting agencies. This activity creates and grows your company’s credit profile and overall business credit report. After your company has several trade lines reporting, your business credit score is generated. As your company's credit profile grows, it is important to monitor your business credit reports. If you discover any outdated or incorrect information, contact the agency in regards to making the appropriate adjustments. Monitoring these reports can also help you decide what's next in your brand's credit-building journey and where you can improve financially.
With an established business credit report, your company may be offered higher credit approvals, better interest rates, and loan repayment terms. These steps will prepare your business for expansive funding opportunities.
Comments