If you're a business on the rise, it may be a good time to look into building your business credit profile. But how do you get business credit?
We're likely all familiar with how personal credit works, but one of the most important things to note about getting business credit is that business credit is not tied to your personal credit file or social security number. There are specific steps you'll need to go through to build your business credit profile so you can get a line of credit under your business' name.
Let's have a look at how you can start building your business credit profile today.
Structuring Your Business Properly
The first order of business that may help you when building your business credit is making sure your business is properly structured. You won't be eligible to open business accounts or get a business credit rating if you're structured as a sole proprietor. Thus, it's best to speak with your tax professional to see which corporate business structure will best suit your company. You can explore LLCs, S-Corps and C-Corps to see which is the most advantageous for your type of business.
Your tax advisor can help walk you through filing the necessary papers with your state to establish your business entity properly. This separate business structure will allow your business to establish its own credit rating separate from your personal credit file.
Requesting a Federal Tax ID
Once your business is incorporated, you can request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). You'll need this number to file both your federal and, if applicable, state business tax returns each year, as well as your state sales tax returns. You can apply for an EIN online here.
Setting Up Business Banking
Once you have your business properly registered and an EIN established, you'll want to set up business banking in the name of your business. Your bank of choice will typically need your articles of incorporation and proof of your federal EIN.
Once your business checking account is set up, you may also want to establish a business savings account. This will let you hold cash reserves for your business and use them as collateral for small-business loans through your bank. By having cash in reserve, your bank will be more likely to extend a loan using these funds as collateral and the loan repayment will help you build your business credit.
Establishing Vendor Credit
It might just be the company that provides cleaning services for your office or the company you order your water from for the office water cooler. But when you're paying invoices for your business, you're building business credit.
Consider asking your vendors from whom you regularly buy things like supplies or services if they report to business credit bureaus. If so, you may want to request that they report your payment history. If they do not report to business credit bureaus, you can still use them as a reference for your good payment history.
Firms like Dun & Bradstreet will ask for vendor references. Also, when you apply for lines of credit or establish relationships with new vendors, they may ask for trade references as well.
Your best bet for establishing positive business credit with vendors is to pay your invoices either on time or early. Keeping good records on your end can help you dispute any discrepancies should they arise.
Getting a Dun & Bradstreet D-U-N-S Number
Your D-U-N-S number is basically a social security number for your business. Countries all over the world use D-U-N-S numbers when determining whether to do business with a certain company. This number can be used by a wide variety of companies and organizations when deciding whether to extend you credit, lease equipment to your company, lend your business money or even grant you government contracts.
It's free and easy to apply for a D-U-N-S number for your business. You can learn more about D-U-N-S numbers and apply for yours here. When you have your D-U-N-S number, be sure to contact your bank and add this information to your business banking account.
Dun & Brandstreet will also likely ask for trade references to verify your payment history. The section directly above has handy reminders about establishing good payment histories with vendors so you'll have these references at the ready when requested.
Checking With Business Credit Bureaus
You'll want to make sure that your business information is up to date with the three credit bureaus that track business credit: Dun & Bradstreet, Experian and Equifax. Make sure that your business address and other contact information is correct, along with varying other information that each bureau stores. Unfortunately, there is no list of standard information that all bureaus report, but you can contact each bureau independently to inquire about setting up your business credit profile and ensuring your data is up to date:
Dun & Bradstreet: You can build your profile online for free by registering here or call 800-591-8534
Experian: You can view their business credit report services online or call them at 888-243-6951
Building Your Business Credit by Using the Above Information
While building your business credit profile might take some legwork, it's work that's well worth it to help you get business credit.
Your next steps once you have the above taken care of is to apply for business credit cards using your business information. This way, you'll be adding to your business credit payment profile with a line of credit that's owned by your business.
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