How to Establish Business Credit: Tips and Advice

 

This article will discuss how to establish business credit when there is no history at all. This is mostly the case when a new business is opened and naturally the business has not had any credit accounts.

 

How to Establish Business Credit: Federal Tax ID
The first step in how to establish business credit would be to apply for a federal tax id number. This separates your personal credit from your business credit with the Internal Revenue Service and state tax agencies. You will also need to have a federal tax id number when you want to open a business checking or savings account. You will also need to secure the proper licenses and permits in your local area in order to do business. Obtaining these licenses registers you with the proper agencies in your area and establishes your credibility with your community.

 

Personal Credit Protection
Protect your personal credit identity by incorporating or establishing an LLC. Insurance from liability is very important so that only your business is on the line and not your personal assets in the case of an unfortunate lawsuit. Also, by establishing a corporation or LLC, you are creating an identity in order to begin reporting on your business credit file.

 

Getting Business Credit
Apply for business credit. Some lenders may require a personal guarantee to grant credit. There are several credit card companies that provide credit cards specifically for the business owner. American Express is a company that caters to the business owner, and usually will provide large credit lines. The importance of not carrying a high amount of debt and making all payments on time is essential to how to establish business credit. Also, apply for business accounts with establishments such as Office Depot or Staples, as they will report business credit to the bureaus.

 

Establish a Business Credit Report
Register with business credit reporting agencies such as Dun & Bradstreet or Experian, or both. Some of these agencies may charge a fee to do so, but you can’t establish business credit if they don’t know you exist. Make sure these agencies have record of your current business credit accounts and that they are reporting them regularly and accurately. Write the agencies for copies of your business credit report annually, check your business’ PayDex score, and be diligent with correcting any errors. One small error could prevent the small business owner from making a payroll if they need extra cash in a tight month.

Figuring out how to establish business credit will seem be a slow process in the beginning, because you will most likely have to have small credit limits and prove your creditworthiness. However, if you make your payments on time, and do not borrow more than you can reasonably pay back, you will build your strong business credit profile in no time.