Building your business credit should be one of your top priorities as a small business owner, as should loans to build your business even higher. The eight steps below aren’t going to be out-there explanations or esoteric journeys, but a straightforward approach to helping you secure a good credit foundation for your business so that you can show just how serious you are about expanding. Just follow the steps, stay dedicated and remain patient until you get what you need.
1. Be Legitimate
There’s nothing wrong with trying to turn a hobby into a business, but you have to make sure that you’re running a legitimate business, one that’s focused on making money. Banks like seeing this as it ensures that you will use the credit and be able to pay it back. There’s no reason to issue credit if it’ll be sitting on the back burner.
2. Create an Entity
You’ll need to form an entity if you want access to business credit. An LLC is a great first step, but an S corp is even better. You’ll also need an EIN for tax reasons. If you are already a taxable entity, then you can skip this step. The only reason you’d want to create a new entity if you already are one is that you currently don’t have a good payment history or poor credit.
3. Obtain a DUNS or D&B Number
Similar to a personal credit score, a D&B or DUNS number (they are both the same, the names are interchangeable) is a marker of your credit use and payment history. A better score ensures that you can secure more credit with better terms. You can register for this once getting your EIN.
4. Business Credit Coaching
You might fight this at first, especially since coaches cost money and time, but a business credit coach might be your best path to securing good business credit. These people are fluent in the paperwork required to get business credit, have bad items or mistakes removed from your credit report and they know how to use the system to their advantage. They’ll also help you learn how to best use your credit and the many steps involved in making the best of it.
5. Trade and Vendor Lines of Credit
Start by getting business lines of credit from stores that you commonly frequent for your business. For example, you probably go to Staples a lot for office supplies, and construction companies are constantly visiting Home Depot. All of these stores have vendor credits. You might initially be rejected since you are a new small business owner and you may have to personally co-sign to ensure that you get credit, but these cards are the best way to start building your score.
6. Applying for Business Credit
Don’t even bother applying for business credit until after building a foundation through local stores. Otherwise you will be rejected. After showing that you’re reliable and that you’ll actually use the card, trying applying for AMEX, MasterCard or Visa lines of credit.
7. D&B Reporting
Track your score constantly and always check that your credit lines are reporting to D&B regularly so that you can build your score.
Maintaining business credit is a lot like personal credit, but you have to make sure that you never overuse your cards and that you make payments on time. These lines of credit are much more stringent and they will quickly close or reduce your amount if you don’t use them responsibly.
Creditors will always be on the look out for the stability of your company. They know that if your company isn’t doing well, then they won’t be paid. Just keep focused and continue making money. Once you have a good credit history and have clearly demonstrated that you can pay your bills on time along with making money consistently, they will be more than willing to give you access to a good loan.
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