Establishing Business Credit for the First Time
By Debbie Gregory.
Establishing business credit is an important step for any new business. Business credit allows a company to borrow money that can be used to purchase products or services.
Having a business credit history separate from a personal one minimizes the effect negative events on one might have on the other. For example, financial missteps that impact personal credit history and score wouldn’t impact the business credit if there is a clear separation, and vice versa. Setting up a separate legal entity, such as a limited liability company or corporation also provides protection of personal assets.
The first step is to structure your business as a separate legal entity.
Next, obtain a federal tax identification number (EIN). The EIN is basically a social security number for a business.
Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. Apply for and use a business credit card, and be sure to pay the credit card bill from your business checking account.
Open a business credit file with all three business reporting agencies: Experian, Equifax and TransUnion. It’s important to closely monitor your business credit reports and scores on a regular basis to ensure the information reporting is accurate and up to date.
Establish a line of credit with vendors or suppliers. Work with at least five vendors and/or suppliers to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.
Most importantly, be sure to pay your bills on time. Just like with your personal credit, late payments will negatively impact your business credit.
By establishing business credit; banks, lenders, suppliers, retailers, insurers and investors will now be able to better access the viability and creditworthiness of your business. Ultimately, your business credit report will impact the amount of credit, payment terms, interest rates and insurance premiums your business will pay.
