Establishing Good Business Credit: 6 Helpful Tips
As your business grows, chances are you’ll need to obtain a loan, line of credit or credit card to help finance your expenses.
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2 min. read
Being approved for any type of financing will be a lot easier if your business already has a strong credit rating. Here are a few steps you can take now to build your business credit:
1. Register your business as a separate legal entity:
Along with registering your business as a separate legal entity with an attorney (for legal advice, consult an attorney), you also need to apply for an Employer Identification Number through the IRS. Most banks require this number to apply for small business loans or lines of credit. Taking these steps will help protect you from personal liability, as well as protect your business from any personal financial missteps.
2. Keep personal and business finances separate:
Most small business owners are invested in getting their businesses up and running – and that often includes dipping into their personal bank accounts. However, this makes it difficult for your business to build credit. If you find yourself constantly needing to use your personal accounts or credit cards to fund your business, it might be time to look into getting a small business loan or line of credit.
3. Apply for a small business loan or credit card:
To start building credit, you need to apply for credit. To get approved for a loan or line of credit, you’ll need to be able to show a history of using money responsibly. Be prepared to show financial records or statements that may include a balance sheet, assets, equity, liabilities, and net worth.
4. Start small:
Generally speaking, the bigger the loan request, the harder it is to get it approved. One strategy is to start with a smaller loan or line of credit. Then, as your business establishes a history of responsible credit use, you can apply for larger loans or lines of credit, if needed.
5. Use credit responsibly:
After your business is approved for a loan or line of credit, you need to make sure you manage it responsibly. Always make payments on time and keep your debt-to-credit ratio as low as possible.
6. Monitor your business credit score:
Even after you’ve achieved a higher credit score, you still need to regularly monitor your credit to ensure everything is accurate and up to date. Consider using a business credit monitoring service that can help provide insight as to how your business looks to lenders. Staying on top of your credit will also help you catch any instances of business fraud or identity theft.
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