Did you know that, just like individuals, your business needs a good credit score? Whether you’re thinking of turning your side hustle into a full-time gig or starting a new business, establishing business credit is imperative.
Without a good business credit history, your business is at risk of facing multiple challenges, such as:
- Denial of loan applications
- High interest rates for approved loan applications
- Inability to acquire upgrades or inventory
- Stunted growth
Whether you plan to expand now or in the future, good credit is necessary. Business credit is similar to personal credit, but is often even more scrutinized by lenders – so it’s essential to start off managing your credit reputation the smart way.
Here are essential tips on building and establishing business credit:
- Make your business official
Establish your business as an LLC or Corporation to make it official. Then register it with the Internal Revenue Service (IRS) to obtain a Federal Tax ID Number, also known as an Employer Identification Number (EIN). You’ll then use this number to file business taxes, open business financial accounts, apply for permits and licenses, and above all, build your business credit.
- Open a business checking account
Once your business is registered, you’ll want to open separate business financial accounts, such as savings and checking accounts.
It separates your personal expenses from your business expenses and creates the foundation to build your business credit. Keeping your personal and business expenses separate also will make tax time much easier.
- Obtain a business credit card
Credit cards are one of the easiest ways to establish and build credit – and this applies to businesses as well. Having a business credit card is one of the best options to build up your credit history with the major credit bureaus. However, just like a personal credit card, you must manage this card responsibly and never miss a payment.
- Work with business vendors or suppliers
Many vendors will provide your business with credit, such as when purchasing inventory. Make sure you pay on time all the time. While not all vendors will report good payment history, they will often report delinquent accounts. So you must pay promptly to those that extend you credit.
Additionally, new vendors you request credit from may ask for references. They might ask to contact other vendors that extend you credit to verify your payment history. Maintaining good relationships with vendors that offer you credit is a must for growing your business’s financial reputation.
- Monitor your credit reports
Checking your credit reports regularly (at least once per year) could help identify costly errors, providing an opportunity to have them corrected promptly. For example, your business credit score may be incorrect simply because you provided the wrong EIN or business name in the form of an incorrect number or letter. The good thing is you can have such errors corrected by your respective business credit bureau.
Maintaining good business credit is one of the best ways to keep your business afloat, even during hard times. And having a good relationship with your financial institution can better your chances of being approved for business loans in the future as your company expands.
We’re here to help!
If you’re ready to start your own business, we’re here to help. Please stop by any of our convenient branch locations or call 1-877-TRUMARK to learn more about the various services we offer businesses throughout our communities.
Each individual’s financial situation is unique and readers are encouraged to contact the credit union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.