Establishing a business involves a great deal of time, effort, and determination. It is hard work to get a business off the ground, but it’s even harder to establish credit for a small business. It is important for business owners to have credit that is external to their personal credit. But because you are attempting to build credit from the ground up, there are certain things that you will want to know to be able to establish your business credit. I run my own business from home as well as a non profit organization, and from my own experiences I can tell you that it is no easy task to acquire business credit from nothing. Even with all the “Preapprovals” that I received in the mail from various financial institutions in the beginning, when it came down to a decision I was always told that the business did not have enough credit history. It was either that, or they wanted my personal credit details which I didn’t want included.
Apply and establish your business identity.
To separate your personal identity from your business identity, you will want to get a Federal EIN, all business licenses and permits that are required for your particular business, and separate bank accounts. Having a completely separate identity from your business will help creditors take your business more seriously.
Establish a Secure Line of Credit.
One thing that you can do to begin building your business credit is to pick and choose a few reputable financial institutions that you would like to bank with and open a savings account with about $500 to $1000 in it. You can then request to open a secured line of credit from that amount that you deposited into your savings account. Be sure to make on time payments to these secured lines of credit. After about nine months of building your credit history, your score will increase which will make it easier to acquire unsecured lines of credit
Establish your business with D&B.
Another good idea to assist with establishing business credit is to get registered with Dun & Bradstreet. Once you are listed in their system, they will give you a D-U-N-S number and a full credit profile for the business.
Although some lending institutions may not use this as an option, there are some that still choose this as a way to ensure debt repayment. A personal guarantee is a pledge that a credit loan will be repayed if the debtor goes into default. If the debtor does actually go into default, the company can sue the person that is on the personal guarantee. For this to work, creditors usually want to be sure that the company that you have started is a low investment risk to their lending institution.
Locate a Business Credit Service.
There are a number of b2b services that offer assistance to helping small business owners establish their business credit profiles. Many of these companies help you to monitor your business credit score, give you helpful tips on how to quickly raise your score, track and monitor other suppliers and business customers, and more. While all of the things that these companies offer you can actually do on your own, they are available (for a fee) to help you to do these things and give you help on some things that you may not be aware of.
While it is not entirely necessary to have business credit cards or lines of credit, it can be a vital part of your business depending on the type of company you are running. Some creditors will also look at the length of time that your business has been running prior to applying for credit, so you may want to take this into consideration before leaping into the first credit card opportunity that comes your way. Be sure to know how much debt you can afford when getting a credit card and always be sure that your company can pay back any amount that is used to avoid future potential credit problems.
In the end, I opted out of business credit cards right away as my business didn’t really need it. But after a few years had past, I attempted it again and sure enough, my business was approved for an unsecured credit card for a fairly decent amount.