How to easily and quickly build your business credit

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How to easily and quickly build your business credit

Published By Janet Gershen-Siegel at October 15, 2017

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You can easily and quickly build your business credit. Here’s how.

Building commercial credit means your firm can get chances you may have never believed you would. You can bid on real estate or get new equipment, even when sales are slow. This is particularly useful in seasonal companies, where you can go for months with only negligible sales.

Because of this, you will need to focus on building your corporate credit. Improve and maintain your scores and you will have these opportunities. Don’t, and either you don’t get these chances, or they will cost you a great deal more. And no entrepreneur wants that. You need to know what influences your business credit before you can make it better.

Separate your personal and your business credit scores.

When you are looking at your business credit score vs personal credit score, they should not be the same. How do you split them up?

The very first thing you need to understand is how lending institutions are thinking. Banks and other lenders frequently ask for personal guarantees because they know you but not your small business. And your personal credit score has, too, most likely been around a lot longer than your small business’s has.

Plus small, new businesses regularly commingle cash with personal accounts. If a business is not making a reasonable profit immediately, an owner will often float a loan to the business, with or (more commonly) without interest.

Commingling funds is not doing you any good when it concerns trying to get a credit line. Itunderstandably sows confusion with lenders. Hence they request a personal guarantee due to the fact that, to them, you and your business are one and the same.

The most effective way to tell everyone that you and your small business are not the same is to create a separate business entity. The IRS has a form on their web page, so you can get an EIN (your company’s identification number for tax purposes).

Apply on the internet after you figure out your eligibility. All you need to know are the answers to a couple of questions: does the person applying online have a valid Taxpayer Identification Number (SSN [Social Security Number], EIN, or ITIN [Individual Taxpayer Identification Number]? And: is your principal business based in the United States or in U.S. Territories? If you can say‘yes’ to both questions, then you are qualified.

The next step is to select the type of business entity you want: sole proprietorship; partnership; corporation; or a limited liability corporation (LLC).

Talk to Your Vendors

Trade credit is one of the easiest types of credit out there. It is a perfectly valid way to develop your small business’s credit score. Essentially, you work with your regular vendors about altering your payment terms. Will your coffee provider or the place where you purchase ink cartridges or plumbing products give you better payment terms? These are like small loans, where you get an additional month or more to pay for your regular essentials.

An added bonus to trade credit is that it improves your community. You are supporting a neighborhood business, and it may very well be a small business just like your own. When you have a great business credit score and achieve success, maybe consider paying it forward and offering a little trade credit of your own, if that’s appropriate at all.

Get Business Credit Cards that Require Personal Guarantees

Now, you do not want to be providing a personal guarantee for life. Personal guarantees put your own assets on the line in the event that your small business falters. However, until your business has been established and its credit is good, lending institutions will be looking out for personal guarantees. Rather than a loan, start with a business credit card, as those are simple to use.

Always make sure, whenever you get these types of business credit cards, that they have a personal guarantee removal feature built right into them. Do not use beyond maybe one third of your total available credit on them. And, as with all sorts of credit, make certain to pay punctually, each and every time. If your cards with personal guarantees go well, then your lender will know your payment history well, and will be far more likely to offer you with a business loan without a personal guarantee if you come asking for one in a few years.

Now that you know how to build your business credit score, go to it and see how it can help your company.

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