Building up business credit is a little more complicated than personal credit. You just need to take a few additional steps that you normally don’t have to do for a personal line of credit.
Here is some further information on how to properly establish and build up a business credit line:
1. Incorporate: The first thing to understand is that to build business credit, you must separate your business and its finances from your own personal credit. That in turn means you must have a business that is a separate legal entity from you. It cannot be a sole proprietorship or regular partnership since those are not separate legal entities. No, the business must be either a corporation or a limited liability company (LLC).
2. Get an Employer Identification Number: Issued by the IRS, an EIN is the business equivalent of a Social Security number. If you don’t have one, get an EIN from the IRS.
3. Get a DUNS Number: Issued by the main adjudicator of business credit, Dun & Bradstreet, a DUNS number is your business’ credit profile number.
4. Go to the bank and open up two accounts: The first is a standard checking account. Again, this must be separate from your own personal checking account. Create it using the business name, EIN, DUNS number, business address, and so on. Second, open up a savings account or CD tied to the business checking account. Put some money in it.
5. Obtain vendor credit: Once you have all of your numbers and accounts in place, you can begin the actual process of building your business credit profile. Begin with the phone company – put your business phone number in the name of your business, and not you personally. If you have utility bills through your business, do the same thing. See if your local office supply store will give your business a small credit line in the name of the business. Maybe one of your suppliers or vendors will do the same.
6. Get a loan: Use that bank savings account or CD to obtain a small loan from the bank again, in the name of the business. By securing the loan with the business savings account, you 1) give the bank every reason to say yes to your loan request, and 2) really begin to build business credit by showing that you received and are repaying a business loan from a bank.
By sticking to the original credit building rules like always paying your credit bills on time and in full when ever possible, you already have built up a strong business credit mentality.
Do you have any other suggestions for first time business owners on how they can help build up their business credit?