Strong business credit is critically important for a small business. It is significant for two reasons. One is that it helps maintain a separate personal and business credit history. Two, it is helpful in building a solid credit score. Strong credit scores have various benefits for a small business. A strong business credit score helps secure better interest rates and have better trade relations with valuable suppliers. Lending money or getting more credit to grow your small business becomes much easier due to solid business credit.
Let’s discuss the ways by which you can build business credit for a small business.
Mapping of the Business
The first step in building business credit is establishing your small business. Building business credit is a dream without establishing your business. Just opening a company does not mean that you are now in the mainstream of the business world. The following are the necessary elements of mainstream business.
- Obtain an EIN for your small business. EIN is a social security number used to file federal taxes and open a business account.
- Obtain a phone number and get it enlisted in the directory to be found on search. YOU can use a mobile number, landline number, or VoIP for a small business. This number should be on the legal name of the small business.
- Open your bank account. You should open this account number in the legal name of the small business. You should make all transactions and bill payments for the company through this business account.
A Good Relationship with Suppliers and Vendors
A solid line of credit with suppliers and vendors is an asset to your small business. Establish and maintain an amicable relationship with them. Having to prepay for things can be avoided by building a better relationship with vendors. A simple method for making a positive credit history is to create a line of credit with three to five suppliers or establish payment terms of net thirty days. Ask this supplier to report the payment history of your small business to credit reporting agencies.
Timely Payments
Timely payments have a very positive and fantastic effect on your credit profile. Late payments badly affect your image. Timely payments of all bills indicate that you are a reliable business owner and that you have enough money to pay on time. Moreover, you can pay off debts timely. Vendors, lenders, and creditors don’t hesitate to build any contract with you if you have a history of paying on time.
Business Credit Card
Open at least one business credit card. More than one business credit card is also recommended but use them cautiously to avoid overspending. Preferably, you should open a business credit card with a company that reports to credit card reporting agencies. These companies are beneficial for establishing credit.
Incorporate Your Small Business
Small businesses should be incorporated to separate legal business and an owner’s profile. Incorporation can be done either by adding an Inc. or LLC. Blending is a legal way to separate personal credit history from the business’s, and it is ultimately helpful in establishing and building business credit for your small business.
Separation of Personal and Business Expenses and Finances
You should not pay business expenses from your credit cards, and You should not pay personal bills from the business accounts. It would be best if you separated both credit profiles. You will not only help to build business credit but also make payment of taxes easy and comfortable.
Monitoring of Small Business Credit
You should regularly monitor credit card statements. You should report any error to credit reporting agencies. About 25% of small business owners have reported errors in their credit reports.
Conclusion
Building business credit for your small business is key to further progress and growth.
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