Building business credit is an important part of growing a business. A good business credit score can enable you to acquire financing more easily, increase the value of your company, and protect your personal credit.
Here are five steps you can follow to build credit for your business:
1. Choose the right business structure (sole proprietorship, partnership, limited liability, and corporation)
Choosing which business structure is right for you is an important step when starting a business. The entity you select has legal, financial, and operational implications.
2. Apply for an Employer Identification Number (EIN) – An EIN, also known as a Federal Tax Identification Number, is used to identify a business entity. You can apply online and get your EIN immediately! Visit the Internal Revenue Service (IRS) website for more information: bit.ly/3aCNNtM
3. Open a Business Bank Account
Separating accounts helps companies organize accounting records, avoid overspending, and accurately file taxes. When you separate your business and personal funds, you can determine how your business is doing.
Tracking income and expenses is difficult when you have mixed funds. But when you open a business bank account, you can more accurately use your bank statement to create a paper trail to compare your accounting books to your bank statement through bank statement reconciliation.
4. Establish credit with Vendors/Suppliers that Report to Credit Bureaus
Some suppliers report credit information to the bureaus, while others don’t. When possible, work with suppliers who report their payment experiences to one or all of the credit bureaus. There is no easy way of telling which companies report information and which don’t. Your best bet is to ask their accounts payable department directly. Generally, midsize and larger companies report payment information.
5. Monitor Your Business Credit Reports
Strong business credit scores can be key to getting your company approved for trade credit and financing. But they can be very different from personal credit scores given their respective factors.
By far, the most important factor when it comes to business credit scores is payment history. Credit scores are almost exclusively calculated based on payment history. Business credit reports may report bills that are just a day or two late, so paying on time is crucial to maintaining strong scores. Learn more about how to check your business credit: bit.ly/2TSyfLV.
For more information on general support to maintain your business, please contact Anthony Ciavattone, Loan Officer at (617) 533-9577 or firstname.lastname@example.org.