Business is all about starting capital, expansion plans, acquisition, further growth and new opportunities. A person is always on the look-out for money to meet his various demands. Besides personal savings, if you are willing to go for it, the other sources of acquiring finance are crowd-funding, family members and friends.
Times are changing and it has become important to build and establish a strong business credit so that you do not have to suffer any loss if any of the above sources refuse to come to your aid. Business credit score has a range of 0-100 with 75 and more as excellent.
It is dependent on your ability to pay bills timely, available credit in bank and credit cards and the number of inquiries on your credit profile. It is important for a company to build its business credit score to obtain finances, favorable rates and further extension of trade credit.
1) Create a separate entity
Create a separate entity if you are looking for ways to build business credit. It is imperative that both personal and business credit remain separate so that one cannot impact the other in any negative way.
It means that you must incorporate and establish your business through proper channels. Create either a corporation or LLC as you cannot opt for either a regular partnership business or a sole proprietorship. This action enables the business to have a legal structure as well as credit rating separate from your own.
2) File the necessary documents
File the necessary documents after you have chosen the appropriate legal structure for your business. This will formalize and give it the necessary structure. The legal formation is compulsory to build credit hence follow all the required steps so that you can maintain the proper documentation as a proof for formal incorporation.
3) Obtain EIN
EIN is issued by the IRS and is equivalent to your Social Security Number. It is a good idea to obtain it as soon as possible because you will need it to open an account in the bank under your company’s name and also to secure contracts and establish trade credits with vendors.
Employer identification number or EIN is used by IRS to monitor and track all the business entities especially for payroll taxes and the incomes that the business has generated. Nowadays it has become possible to get an EIN in a few minutes online hence opt for it if you are looking for ways to build business credit.
4) Obtain DUNS number
DUNS or Data Universal Number System has been constructed and managed by a reporting agency for business credit called Dun & Bradstreet. It is globally acknowledged numerical identification system in relation to business entities. A nine-digit unique code is created for each and every business that is registered with the agency.
The best part of DUNS is that it is not managed by any government agency nor is limited to a particular country. It is not compulsory to obtain a DUNS number although people acknowledge its worth to build business credit. Register early on because it will fruitful later on when you will actually need it to establish credit, apply for SBA loan, extend trade credit and compete successfully for government contracts and its several grants.
The process of obtaining DUNS number is possible via online registering via Dun and Bradstreet’s Company Update portal. You just need to offer required basic information and in a few minutes, you will be successful in your efforts. Remember it is free and you do not have to shell any extra amount for the registration. You will receive the DUNS number via email or mail in nearly a month’s time.
5) Get registered on Experian and Equifax
Besides D & B, there are two other important credit bureaus related to business. Hence register with Experian and Equifax also besides D & B to create a credit file in relation to business credit. List your business name, phone number and address on major directories and open accounts that report directly to credit bureaus if you are looking for ways to build business credit.
This will prove beneficial for you in the long run when you will be needing the credit report to obtain loans or credits for your business.
6) Open business checking account
It is necessary to start as you mean to go on. Hence keep finances related to both personal and business entity fully separate if you are looking for ways to build business credit. An important step towards this thought is opening and maintaining separate accounts in the bank as well as credit cards.
Remember to separate all your transactions so that it becomes easy to maintain records. You can open a business account in either the bank that has your personal account or a separate bank as per your convenience. Make sure to use your specific EIN in the business account at the onset so that all details of financial history are logged accurately.
7) Set up a business address
Establishing a business address is very important if you are on the look-out to build business credit for your company. This step solidifies the existence of your business entity and enables you to register it in business directories. Remember it is also considered an important part of the verification process and several credit agencies consider it a must while verifying your existence and credibility.
8) Set up a phone line
You can choose a cell phone, landline, Google Voice number or VoIP services to set a particular phone line for your company. It is imperative that the number gets listed in public directories if you are looking for ways to build business credit.
Use it on a regular basis if you are working with creditors and traders so that the number gets associated with your business entity. Remember some credit agencies looks at the listed numbers for verifying your credibility.
9) Establish trade lines
Establish a solid relationship with your suppliers and vendors if you are interested to build business credit. A good foundation will prove fruitful in the later stages and will become a blessing in establishing credit. Try for trade credit from vendors and suppliers so that you can have leeway and pay after you receive the items.
Try to negotiate for the best terms for you. If you pay the due amount in full and on and before the time this boosts your credit scores. Opt for people who will report it to Business Credit Bureau as this will prove beneficial for you.
10) Get a business credit card
Credit lines and loans are very popular methods of acquiring finance for small business entities. It helps in its growth and seamless operation. Several business credit products are available for small business but the entity must be at least two years old to qualify for the line of credit. You can opt for a business credit card for your daily activities related to business.
It will allow you to borrow money but make sure to pay back in the account before the due time as it will replenish the credit limit to the original amount. Opt for a card that reports all the activities as it will help you to build business credit.
11) Apply for small business loans
Apply for small business loans from your bank if you are looking for ways to build business credit. Tying up the loan with a bank account will nudge the bank towards saying yes to your request and it will help you in earning brownie points when you show that you are repaying a business loan from a bank.
12) Borrow from lenders that report all the activities
If you are one of those people who believe in prompt payment then you must find lenders that report your good payment history to credit bureaus. If a lender does not make the effort to report all the financial activities then you will not be able to establish a good credit score. Opt for them if you are unable to make payments on time. Remember most of the financial institutions report the repayment history diligently hence you must be aware of them if you are looking for ways to build business credit.
13) Make sure all the information is current
See that all the information listed in your credit report is current as it has a direct impact on your credit score. All the three main credit bureaus are independent of each other and collect different information. The vendors and suppliers also report to different bureaus. Make sure that all the information is listed in all the three main credit reports.
14) Scan for errors
Agencies related to business credit have to gather facts and information from various sources and sometimes an error occurs. It is imperative that you identify and correct them within a reasonable time frame if you are looking for ways to build business credit. Several owners of small business entities have found significant errors hence be diligent in your efforts and keep monitoring the reports regularly.
15) Pay your bills on time
Late payments have a negative impact on the business credit hence avoid it at all costs. Credit bureaus love business entities that pay on time as it boosts the credit scores. If you are looking for ways to build business credit either pay early or on time and make sure all the transactions are recorded in your credit history. Remember even if you are late by a few days it will have a negative impact on your business credit hence try to be on time.
By this time you must have realized how important business credit is for a company and various methods to build it. You never know when the necessity for further capital may strike and remember at such times it is business credit that is a blessing in disguise for an entrepreneur. It is crucial maintaining a strong credit to sustain seamless operations. A company becomes better positioned in terms of payments and can ask for favorable credit terms from lenders and banks. Remember to build separate business and personal credit as you can minimize any negative effect of one on another.