Establishing business credit is essential for small businesses. It helps you to maintain a credit history that’s totally separate from your person credit, take advantage of the benefits of good business credit, and shows a separation between the business and the owner. There are eight simple steps to establishing business credit.
1. Incorporate
Your business may already be incorporated. If it’s not, do it right away. General partnerships and sole proprietorships are set up so the business is legally the same as the owner. As a result, there’s no separation between business credit and personal credit. Incorporation, or the formation of an LLC, results in a business that’s legally separate from its owner.
2. Get an EIN
A federal tax identification number, better known as an EIN, is a social security number for your business. It’s required to fill out federal taxes and to open a business bank account in the name of your company. Larger businesses also often require an EIN from vendors.
3. Open a bank account for your business
A business checking account needs to be opened in your legal business name. When it’s open, make sure you pay the financial transactions of the business from that account and that account only.
4. Get a business phone number
Next, be sure you have a separate phone number for your business and be sure it’s in your business’s legal name. List your business number in various directories so it’s easy to find.
5. Open your business credit file
You need to open a business credit file with all the credit reporting agencies: Equifax, TransUnion, and Experian.
6. Get a business credit card – or two
You’ll need to get at least one business card that isn’t linked to you or any other owners of your company. Choose a business credit card from an insurer that reports to all three credit agencies.
7. Establish lines of credit with vendors
You should have at least five lines of credit with different vendors or suppliers. This creates credit with your company. Ask your vendors and suppliers to report your positive payment history with the top three credit reporting agencies.
8. Pay your bills on time
This may seem obvious, but it’s one of the most important parts of establishing business credit: pay your bills on time! Just like your personal credit, if you make late payments on your business credit cards or lines of credit, it will negatively impact your business credit.
If you have additional questions about the process of applying for, using, and building business credit, contact Leaf Credit Solutions. We can offer a unique perspective and targeted advice for your specific situation.