When starting a small business, one of the most important things you need to do as the business owner besides getting funding is to establish business credit. As we know, establishing credit isn’t something that happens overnight. It takes some time to get it to the level that would allow you to have enough credit to have buying and borrowing power. Though it is not something you can establish overnight, you can establish some things to establish business credit faster. Here are six tried and true methods of establishing business credit fast.
Register Your Business Entity
Business credit history is not the same as personal credit history. Credit history for business is more heavily weighted and not easily dismissed when obtaining capital for your business. Though some small businesses do not need to be incorporated or made into a proprietorship, a business that needs to build business credit registering your business is a must. The bonus is that having your business registered separately from your personal affairs protects your assets and accounts.
Here are the structures you can register your business under:
- C-Corporation: A C-Corporation separates you from your business, financially and legally. A C-Corporation is best for businesses that are planning to issue stock or go public as they grow.
- S-Corporation: An S-Corporation separates you from your business, financially and legally. These are pass-through businesses in which the profits are taxed at the individual level.
- Limited liability company (LLC) – An LLC is an incorporated business with liability protection that separates you financially and legally from your business. An LLC offers more tax protection than a corporation.
- Limited liability partnership (LLP) – An LLP is a registered business that is generally used for businesses that will eventually become a partnership. This type of registration is used a lot among medical and law practices.
When building your business credit, you must choose a structure for your business. If you’re having difficulty figuring out how to structure your business, you can consult an accountant or business attorney.
Get an Employer Identification Number (EIN)
When establishing your business, it is important to obtain an employer identification number (EIN) for tax and business tracking purposes. It is similar to how a Social Security number works for you and your personal life.
Not every business needs an employer identification number, such as sole proprietorship or single-owner LLC. However, it is suggested that you obtain one for your business, regardless. The employer identification number helps you establish business credit and will be useful when doing your business taxes.
Open a Business Bank Account
Registering your business and obtaining an employer identification number are great ways to help you establish business credit and separate yourself from your personal affairs. However, if you need to continue the separation when it comes to your bank account, many small business owners use the same account for personal and business use, but this can be a mistake. It would be best to separate every aspect of the business to protect your assets and establish your business credit.
Opening a business or merchant account can be done at the same bank you hold your personal account or open at a new bank. Some banks that have personal accounts don’t specialize in business accounts, while others do. If you have any questions, you can consult an accountant. The most important thing is to do your research before opening your business or merchant account.
Establish a Dedicated Business Address and Phone Number
Establishing a dedicated business address is simple if your business is a brick-and-mortar. However, if you will be operating your business out of your home, you will need to establish a virtual business address. This address will help your business stay separated from your home and avoid anyone coming to your home, thinking it’s a brick-and-mortar business. Your virtual business address can receive mail and help you keep your personal and business mail separated.
You should also establish a business phone number. You can do this in several ways. If you have a traditional brick-and-mortar business, you can have a phone installed in the business to use as your business phone number. However, suppose you’re going to be working out of your home. In that case, you can either get a separate cell phone number for your business or establish space a phone number online that will forward to your personal about without revealing your personal phone number. This is not only important for security but also to help you further establish business credit.
Get a Business Credit Card or Line of Credit
Obtaining a business credit card or a business line of credit can help you build your business credit quickly. However, it can be very difficult to get a credit card or line of credit for your business because you have not yet established any credit. If this is the case, you can use your personal credit if it is good to help you obtain either of business credit card or business line of credit. You can also obtain secured credit cards or loans and use them and pay them off immediately to establish credit. Once you build enough credit, you can get a larger limit of unsecured credit cards and loans.
Borrow from Lenders That Report to the Business Credit Bureaus
When you begin to get larger loans, make sure you always use lenders to report to a business credit bureau. Some loans and credit lines do not report, which will not help you establish your business credit. Though lenders that report often have higher interest rates, if you can quickly pay the balances, this won’t be as costly as you think. There are three major business credit bureaus: D&B, Experian, and Equifax. Most traditional lenders and banks who give business loans are associated with one or all of these credit reporting bureaus.
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