How to Establish Business Credit
Building business credit can be an integral aspect of a small business owner’s financial life. Not only does it help you access loans and lines of credit from banks and other lenders, but it also offers you peace of mind. Establishing business credit and building a good business credit file is an important part of building a long-term business.
Establishing business credit can include but is not limited to forming a legal entity and applying for an employer identification number (EIN). After these tasks have been completed, open a business bank account and begin making payments there.
When opening a business bank account or any business credit account, make sure they report to all three major business credit bureaus. Doing this guarantees your payment history will be included in your business credit report and ultimately help boost its score.
Another way to build business credit is by getting a business credit card and using it for certain business expenses, but it’s important that you keep your balance under control and that ou make all payments on time. Make sure to pay off the card each month, never taking out more than you can comfortably repay each month.
Paying all of your business bills promptly or on time is a wise idea. Doing so sends the message to lenders that your company can effectively manage cash flow, has enough funds in reserve to pay its creditors, and acts as an accountable borrower.
Applying for a credit card is an efficient and effective way to start building business credit. Many of these cards offer rewards, discounts or other perks which can help boost your company’s brand recognition while building up its business credit score.
Paying with your business credit card for expenses can help build credit in several ways, from avoiding unnecessary interest rates to demonstrating to future lenders that your company is financially sound. Furthermore, having access to a business credit card provides an easy and cost-effective means of keeping track of expenditures for better budgeting.
Be mindful not to overload on business credit cards, however. Too many can dilute your credit profile and potentially hinder future access to personal financing or other forms of business funding.
Consider setting up vendor accounts, which can be used to pay for equipment, supplies or other goods you buy for your business. These should be secured by a pre-paid sum of money placed in the vendor’s bank account as security; this is an effective way to build credit in the vendor’s favor.
Don’t neglect to regularly review your business credit report, as any negative marks on it can have an extensive effect on the standing of your company. These could include bankruptcies, judgments and liens.
Paying your business’ taxes, such as income and property taxes, on time each year is a wise idea. Doing so can improve a company’s credit rating significantly, so be sure to file all necessary forms on time each year.
Leanr more about how to establish business credit on our business credit services page.