Introduction
Building business credit is an important part of running a successful business. It enables companies to access financing, build trust with vendors and suppliers, and increase their purchasing power. But getting started can be daunting for many businesses. This guide will provide an overview of the steps needed to start building business credit.
Establish a Separate Business Entity
The first step in building business credit is to establish a separate business entity. This can be done by forming a corporation, limited liability company (LLC), or other type of business structure. Doing so has several benefits, including protecting personal assets from business debts, limiting personal liability, creating a more professional image, and allowing for easier access to financing.
When establishing a business entity, there are several steps to take. These include registering the business with the state, obtaining an Employer Identification Number (EIN) from the IRS, and opening a business bank account.
Open a Business Bank Account
Once the business entity is established, the next step is to open a business bank account. This is important for separating business and personal finances, as well as providing a reliable source of payment for vendors and suppliers. When looking for a bank, it is important to consider factors such as fees, customer service, and online banking features.
Opening a business bank account is relatively straightforward. All that is needed is proof of the business’s existence, such as its EIN, Articles of Incorporation, or LLC Operating Agreement. The bank may also require additional documents, such as a business license or tax returns.
Apply for Business Credit Cards
After establishing a business entity and opening a business bank account, the next step is to apply for business credit cards. Doing so can help build business credit, as long as the card is used responsibly. Before applying, it is important to consider factors such as interest rates, fees, rewards programs, and purchase protection benefits.
There are several types of business credit cards available, including traditional cards, charge cards, and secured cards. Traditional cards have a credit limit, while charge cards do not. Secured cards require a deposit, which serves as collateral, and they often have lower credit limits than other types of cards. Applying for a business credit card requires submitting an application with the necessary information, such as the business’s name, address, tax ID number, and contact information.
Establish Trade Lines with Suppliers
Establishing trade lines with suppliers is another way to build business credit. Trade lines are essentially lines of credit extended to businesses by suppliers. These lines of credit can be used to purchase goods and services from the supplier, and they enable businesses to build credit faster than with credit cards alone.
In order to establish trade lines with suppliers, businesses must approach them directly and request a line of credit. They should provide the necessary information, such as the business’s credit history, financial statements, and bank accounts. The supplier may also require additional documentation, such as proof of insurance or licenses.
Monitor Your Credit Profile Regularly
The final step in building business credit is to monitor your credit profile regularly. This can be done by requesting a copy of your business credit report from the three major credit bureaus—Experian, Equifax, and TransUnion. Reviewing the report can help identify errors or fraud, as well as provide an overall picture of the business’s creditworthiness.
It is also important to regularly check for new accounts and inquiries. New accounts may indicate fraudulent activity, while inquiries may indicate that a lender or creditor is considering extending credit to the business. Checking for these items regularly can help businesses stay on top of their credit profile.
Conclusion
Building business credit is essential for any company that wants to grow and succeed. This guide outlined the steps needed to establish a separate business entity, open a business bank account, apply for business credit cards, establish trade lines with suppliers, and monitor your credit profile regularly. By taking these steps, businesses can start building their business credit and enjoy the many benefits it provides.
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