For a small business, it is critically important to have a strong business credit. Its significance is due to two reasons. One is that it is helpful in maintaining a separate personal and business credit history, secondly, it is helpful in building a strong credit score. Strong credit scores have various benefits for a small business. A strong business credit score is helpful in securing better interest rates and having better trade relations with valuable suppliers. Lending money or getting more credit to grow your small business becomes much easier due to strong business credit.
Let’s discuss the ways by which you can build business credit for a small business.
Mapping of the business
The first ever step in building business credit is to establish your small business. Building business credit is a dream without establishing your business. Just opening a business does not mean that you are now in the main streamline of the business world. Following are the necessary elements to a mainstream business.
- Obtain an EIN for your small business. EIN is a social security number used for filing federal taxes and for opening the business account.
- Obtain a phone number and get it enlisted in the directory so that it can be found on search. A mobile number, landline number or VoIP can be used for a small business. This number should be on the legal name of the small business.
- Open your bank account. This account number should be opened in the legal name of the small business. All transactions and bill payments for the business should be done 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 a pleasant relationship with them. Having to prepay for things can be avoided by building a better relationship with vendors. A simple method for building a positive credit history is to build 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 have a very positive and amazing effect on your credit profile. Late payments badly affect your image. Timely payments of all bills depict that you are a reliable business owner and 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 kind of 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 and avoid overspending. Preferably, the business credit card should be opened with a company which reports to credit card reporting agencies. These companies are beneficial for establishing credit.
Incorporate your small business
The small business should get incorporated to separate legally business and an owner’s personal profile. Incorporation can be done either by adding Inc or LLC. This is a legal way for separating personal credit history from that of the business. And, ultimately helpful in establishing and building business credit for your small business.
Separation of personal and business expenses and finances
Business expenses should not be paid from your personal credit cards and personal bills should not be paid from the business accounts. Both credit profiles should be clearly separated. This will not only help to build business credit, but also make payment of taxes easy and comfortable.
Monitoring of small business credit
Credit card statements should be regularly monitored. Any error should be reported to credit reporting agencies. About 25% small business owners have reported errors in their credit reports.
Building a business credit for your small business is key to further progress and growth.
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