How to Get Business Credit
You have spent years establishing your own credit, but did you know that you can actually establish credit for your business as well? Many small business owners do not realize that they can establish business credit. It is estimated that only a small 10% of all small business owners understand how business credit works, so let’s find out.
First, let’s discuss how personal credit and business credit are different from one another. With personal credit, credit starts becoming established the second that someone obtains their first credit card. If payments are made on time each month, good credit will be established. Likewise, if payments are not made on time, bad credit is established. This positive or negative credit is reported through a credit report. Your personal credit report will tell lenders how reliable you are when it comes to repaying loans. Obviously, the better your credit score, the more likely you are to be accepted for further loans.
In many cases, business credit works the same. When one business loans money to another business, it is called “trade credit” or “business credit”. Just as personal credit bureaus gather your information to produce your credit report, business credit bureaus will gather your business information to create your business credit report. Anytime your business needs a loan, the lender will look into your business credit report (rather than your personal one) to decide whether they want to lend you money. One of the main differences between business and personal credit is that, with business credit, you have to send in your own information to the credit bureaus. If you do not send in your information, you could be repaying loans for years without gaining any credit for it.
While personal credit scores usually range between 300 and 850, business scores generally range between 0 and 100. A score of 75 or above is generally considered a very good rating. One of the biggest mistakes that business owners make is to apply for business credit using their personal credit. This is why it is important to look for companies who will lend you money without needing your personal credit information.
To start establishing your business credit, your first step is to create a corporation to operate your business number. Once you have done that, seek to obtain an EIN or FIN number from the IRS. Next, register your company with a business credit bureau. Keep in mind that if you skip this step, you will not be able to establish your credit regardless of how many payments you reliably make. In order to be accepted for business credit, you will need to research and follow any business credit requirements, develop a business plan to show your lender, and prepare any financial statements you may have. The more you have to show the lender, the more likely you are to be accepted for business credit. Once you have been accepted for credit, be sure to make all your payments on time. This will help to build good credit and keep you away from bad credit.
If you own a business, it is highly suggested that you start building your business credit. By doing so, you will keep your business credit and personal credit separate, preventing your personal credit from being affected by your business.