Are you looking to establish your business credit profile but don’t know where to start? Building a strong credit history is vital for any company, especially those aiming to grow and expand. However, it can be overwhelming trying to figure out the best way forward. Fear not! In this blog post, we’ve compiled seven essential steps you need to take in order to establish a solid business credit profile. From understanding what goes into your credit score to establishing trade lines, we’ll guide you through everything you need to know. So let’s dive in and get started on building your business’s financial strength!
How to Build Business Credit
If you’re like most small business owners, you probably haven’t given much thought to your business credit score. After all, personal credit is what really matters when it comes to borrowing money for your business, right?
Wrong.
Increasingly, funders are giving as much weight to your business credit score as they are to your personal credit score when making lending decisions. That’s why it’s more important than ever to make sure you have a strong business credit profile.
Building your business credit profile is not as difficult as you might think. In this article, we’ll give you a step-by-step guide to establishing your business credit so that you can get the financing you need to grow your business.
Step 1: Registering Your Business Entity with Government Agencies
If you want to establish business credit, the first step is to register your business entity with government agencies. This will give your business a legal identity and make it easier to get approved for loans and lines of credit.
To register your business entity, you’ll need to choose a business structure and obtain a tax identification number from the IRS. You may also need to register with state and local government agencies. Once you’ve registered your business, be sure to keep good records of all your financial transactions. This will help you build a strong credit history for your business.
Step 2: Obtaining a Federal Tax Identification Number (EIN)
In order to obtain a Federal Tax Identification Number (EIN), you will need to complete an application with the Internal Revenue Service (IRS). The application, Form SS-4, can be found on the IRS website. Once you have completed the application, you will need to submit it to the IRS along with your payment. The IRS will then issue you an EIN that can be used for business purposes.
It is important to note that you will need to have a Social Security Number (SSN) in order to apply for an EIN. If you do not have an SSN, you will need to apply for one before you can apply for an EIN.
Step 3: Open a Business Bank Account & Establish Good Banking Habits
One of the most important steps you can take to establish your business credit profile is to open a business bank account and develop good banking habits. This will not only help you better manage your finances but will also show creditors that you are a responsible borrower.
When choosing a business bank account, be sure to shop around and compare features and fees. Look for an account that offers free or low-cost withdrawals and deposits, as well as online banking and bill pay features. Establishing good banking habits is just as important as finding the right account – be sure to keep track of your account balances and make timely payments on any outstanding debts.
By taking these steps, you’ll be well on your way to establishing a strong business credit profile that will give you access to the financing you need to grow your business.
Step 4: Set Up and Monitor Tradelines
Assuming you’ve already completed steps 1-3, it’s now time to set up and monitor tradelines for your business. Tradelines are simply lines of credit that appear on your business credit report. They help creditors assess your creditworthiness and can be either revolving (e.g., credit cards) or non-revolving (e.g., loans).
To set up tradelines, you’ll need to apply for credit with funders who report to the business credit reporting agencies. When shopping for funders, be sure to compare terms and rates to get the best deal. Once you’re approved for credit, be sure to use it wisely by making timely payments and keeping your balances low.
To monitor your tradelines, you’ll need to regularly check your business credit reports from the major business credit reporting agencies. You can get free copies of your reports from Experian, Dun & Bradstreet, and Equifax. Keep an eye out for any negative information, such as late payments or high balances, which could hurt your chances of getting approved for new lines of credit in the future.
Step 5: Apply for Business Financing
The first step in applying for business financing is to research your options. There are many funders out there who specialize in small business financing, so it’s important to shop around and compare rates and terms.
Once you’ve found a few potential funders, the next step is to fill out an application. This will include some basic information about your business, as well as your financial history. Be sure to provide accurate and complete information, as this will be used to determine whether or not you qualify for the loan.
Once you’ve submitted your application, the funder will review it and make a decision. If you are approved for funding, you’ll then need to sign a contract and agree to the terms of the funding. Once that’s done, the money will be deposited into your account and you can start using it to grow your business!
Step 6: Use Credit Cards Responsibly
If you’re looking to establish business credit, one of the best ways to do so is by using credit cards responsibly. This means making timely payments, keeping your balances low, and using your cards for business expenses only.
By following these simple tips, you can help build a strong business credit profile that will give you access to the funding you need to grow your business.
Step 7: Monitor Your Credit Regularly
There are a few key things you should monitor on your business credit report:
- Payment history – This is the most important factor in your business credit score, so you want to make sure that all of your payments are being reported accurately.
- Credit utilization – This is the amount of credit you’re using compared to your total available credit. You want to keep this number low, around 30% or less.
- Credit mix – This is the variety of different types of credit accounts you have, such as revolving accounts (like credit cards) and installment loans (like car loans). Having a mix of both can help improve your score.
- Inquiries – Each time you apply for new credit, an inquiry will show up on your report. Too many inquiries can hurt your score, so only apply for new credit when you really need it.
Have you been looking for more information on business financing and getting financing for your business? Check out Reil Capital to learn more!
