As a smart entrepreneur you will want to establish your company’s credit as separate from your own. Realize that your personal assets might be on the line if your business uses your personal credit. You want to be able to distinguish your personal credit from your company’s business credit. It will take some extra effort, but you’ll have a stronger business in the long run. The following eight topics are crucial to giving your company its own credit identity.
1. Separating your personal credit from your business credit protects your personal finances if the business fails, but it also protects the business just in case there are problems with your personal credit. Ideally you will want to incorporate your business or form an LLC to establish business credit without a personal credit check. Sole proprietors and partnerships by definition are personally liable for the business, so if separate business credit is your goal you’ll want to avoid those options.
2. Establish your business’ identity. You’ll need a Federal Employer Identification Number (EIN) for your business as well as separate bank accounts that are under the legal name of your business. Make sure you have all necessary licenses and permits and designate a separate phone line solely for your business. All these things give your business more clout when creditors are reviewing your business potential.
3. Pick a bank and stay there. Loyalty counts in the credit markets. Try to keep your capital in the bank and earning as much as possible.
4. Open business credit files with the credit reporting agencies that are designed for businesses such as Dun & Bradstreet and Experian. They report on business credit similarly to the way companies track your personal credit. Once you have credit established for your business, you can report your payment history to these agencies to build your credit score. Proactively call to set up your file with a D&B Representative. When applying for business credit, submit your D&B report with your credit application.
5. Obtain business credit cards that are not personally linked to you. Your bank is a good place to start looking for a business credit card.
6. Contact a few vendors and suppliers that report to D&B and ask them to extend a small amount of credit to your business. Vendors that report to D&B build your business’ credit. Vendors that don’t report to D&B don’t build your business’ credit. Pay your bills on time and you’ll soon have solid relationships. If a vendor won’t give you net 30 days terms, then pre-pay your first couple of orders and ask for credit again. You’ll probably get it.
7. Borrow against an asset that your business owns, then make your payments on time.
8. Don’t spend beyond your means. Don’t run up lines of credit that you can’t hope to pay. It will not only destroy your credit, but also your business. Spend wisely but regularly, and try to keep costs low. By spending and paying in a timely manner, you’ll develop good business relationships and begin to see your credit score rise, which will ensure that if the time comes when you do need more money to keep your business going, you’ll not only have access to it, but you’ll get better terms.
