Establishing your initial business credit is an important step to gaining access to resources that you may need to run your business. It can give you cash flow and help you buy goods, pay your employees, or take care of your bills. When a business doesn’t have access to credit, it can fail or struggle.
Why It’s Important to Establish Credit
There are several reasons that it is important for businesses to establish credit. First, they may need to purchase equipment. The equipment may help grow the business and save it money in the long-term. In addition, they can function if something goes wrong. If business is slow, they can get through difficult times with credit. Finally, having business credit elevates the value of a business by showing investors that the business is credit worthy.
How to Set up Business Credit
When you set up business credit, you need to do it the right way. Making errors can hurt your credit score as well as the valuation of the business.
The first thing you need to do is form a legal business entity. You can choose an LLC, a corporation, or other types of legal entities. This also protects you because it keeps your business and personal finances separate.
Next, make sure that you choose net-30 vendors that report to the business credit bureaus. They will report your payment history, which helps to build your credit.
It is important to learn how business credit scores are calculated. For example, you need to pay your bills early, not just on time, to get a good score.
What to Do to Establish Business Credit
Once you create a legal entity, you need to get an EIN (Employer identification Number). You should also get a business phone line that has a directory listing. It is also important for your business to have a physical address and location.
Make sure that you use the same address on all of your business documents, and the business name should be an exact match to the registered name.
Next, you should create your website. It should also have your business information, and it should be accurate. You should have a business email that comes from this domain rather than a Gmail or Yahoo account. Open a business bank account, and you are ready to get started.
Start with your net-30 vendors, and open store credit card accounts. Then, you can apply for a working capital loan. This will help you build credit and provide you with the cash flow you need.