Starting a new small business can be an exciting and rewarding experience, but it can also be challenging, particularly when it comes to building your credit. Building your business credit is crucial, as it can help you secure loans, access better financing terms, and establish credibility with suppliers and customers. In this blog post, we'll explore how to build your new small business credit.
1. Establish your business structure
Before you can start building your business credit, you need to establish your business structure. If you're a sole proprietor, your personal credit history will be tied to your business credit. However, if you establish a separate legal entity, such as a limited liability company (LLC) or corporation, you can establish a separate credit history for your business.
2. Obtain a federal tax ID number
Once you've established your business structure, you need to obtain a federal tax identification number (TIN) or employer identification number (EIN) from the Internal Revenue Service (IRS). Your TIN or EIN will be used to identify your business for tax purposes and to apply for credit.
3. Open a business bank account
Opening a separate business bank account is essential to building your business credit. A business bank account demonstrates that your business is separate from your personal finances and provides a clear record of your business's financial transactions. When opening a business bank account, be sure to choose a bank that reports business account activity to credit bureaus.
4. Apply for a business credit card
Applying for a business credit card is an excellent way to start building your business credit. A business credit card can help you manage cash flow and expenses while establishing a positive credit history. When applying for a business credit card, look for one that reports to credit bureaus and offers rewards or benefits that align with your business needs.
5. Establish trade credit
Trade credit refers to the credit you receive from suppliers and vendors. Establishing trade credit can help you build your business credit quickly, particularly if you're able to make timely payments. When establishing trade credit, be sure to choose vendors that report your payments to credit bureaus.
6. Apply for a small business loan
Applying for a small business loan can also help you establish credit. While it may be challenging to secure a loan as a new business, there are several options available, such as SBA loans and microloans. When applying for a loan, be sure to review the requirements carefully and provide all the necessary documentation.
7. Make timely payments
Making timely payments is crucial to building your business credit. Late payments can hurt your credit score and make it more challenging to secure financing in the future. Set up reminders or automatic payments to ensure that you never miss a payment.
8. Monitor your credit score
Monitoring your business credit score is essential to building your credit. Regularly reviewing your credit report can help you identify errors or fraudulent activity and address them promptly. You can obtain a free credit report from each of the three major credit bureaus annually.
Conclusion
Building your new small business credit takes time and effort, but it's essential to your business's success. Establishing a separate legal entity, obtaining a TIN or EIN, opening a business bank account, applying for a business credit card, establishing trade credit, applying for a small business loan, making timely payments, and monitoring your credit score are all critical steps to building your business credit. By following these tips, you can establish a positive credit history and unlock new opportunities for your small business.
