When it comes to running a business, you'll want to make sure that you keep your business finances separate from your personal finances. The last thing you want is to have your personal finances affected due to issues running your business. However, establishing and building your business credit can be a challenge if you're a first-time business owner. You must build credit since you'll need it to take out loans to invest in your business and help it grow. With that in mind, following is a guide on how to establish business credit:
1. The first thing you should do is to incorporate your business. Doing so creates a barrier between your personal and business financials, ensuring that creditors can't come after you personally if they have problems with the LLC's credit. The additional reporting and record-keeping for business entities is also a great way to build your credit. If you manage your company's finances and tax filings, this will be a great way to show the credit bureaus that your business is in good financial health.
2. Get an Employer Identification Number. An employer identification number (EIN) is the number that the IRS uses to identify your business. If you are going to apply for business loans or credit cards to start building your business's financial strength, then you should file for your EIN first. This way, the creditor will see that not only are you experienced in managing your personal credit, but you've managed the financials of a business as well.
3. Set up a business bank account. If you plan to borrow money for your business, it's crucial to establish a bank account as soon as possible and show that the LLC is financially sound. Getting a business bank account will also help you build your credit because it lets the lenders know that you can responsibly use credit.
4. Establish credit with your vendors and suppliers. Once you've established relationships with vendors and suppliers, ask them if you can establish a line of credit. By doing so, the payments you make will be reported to the credit reporting agencies and therefore will help to build your credit.
5. Apply for a business credit card. By taking out a business credit card, you'll not only have a line of credit that you can use for business expenses, but you'll begin to build your company's credit history as well. By regularly using and making on-time payments on your business credit card, you'll begin to establish a positive credit profile. As a result, your business will be able to take out larger lines of credit or bigger loans in the future.
6. Pay your bills on time. Businesses that are new or haven't established good financials tend to have difficulty getting business loans and lines of credit. One of the best ways to establish creditworthiness with a creditor is by paying your bills on time. As such, consider setting up automatic payments so that you don't accidentally miss payments or make late payments.
7. Check your business credit report regularly for errors. Even the smallest errors can affect your business credit, so be sure to report them if you find them.
Knowing how to establish business credit is crucial to keeping your personal and business finances separate. Not to mention, you'll need good business credit to give your company the financial flexibility it needs to both grow and survive over the long term.