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| The Need for Business Credit |
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If you own a business, then you need to know about business credit. Even if you started your business using your own personal credit, you need to know how your business's credit score affects your ability to get business loans in the future. Getting a small business loan is much easier if you have a good credit score for your business.
Many small business owners assume that they can use their personal credit to start their business, rather than working on building a corporate credit score separate from their personal score. The problem with this plan, however, is that the process of building a business requires far more debt than the average consumer has. When this debt is reported to a credit report agency, it lowers your personal credit score. Business credit scores, on the other hand, have slightly different rules than personal credit scores, because the credit reporting agencies know that businesses have different credit needs than consumers.
If you have a good credit score for your business, you can apply for a business bank loan or business start up loans easier. Also, you can keep the finances for your business separate from your personal finances. This is important, because if your business does not succeed as well as you would like it to, you can save your personal finances and assets.
So, if you need to build a credit score for your business, how do you do it, especially if you are a small business owner? First, you must decide how you are going to structure your business. While this doesn't seem to be connected to credit scores, it is an important first step towards separating yourself from your business. You may wish to become a corporation, sole proprietorship, partnership, or a LLC. LLC or corporation structures are the ones to use to keep your personal finances out of the picture. Then, apply for an employer identification number, which will serve as your business's identification with creditors and credit reporting agencies. Finally, open a business bank account under your new business name and finish all paperwork required for owning a business in your city.
Once you have done this, start some credit lines with vendors, such as office supply stores. As long as you have an employer identification number, you can usually get a line of credit with these vendors. Opening these lines of credit is an important step before approaching business loans lenders to apply for small business loan financing.
Once you have a few lines of credit in place, apply for a profile with Dun and Bradstreet, one of the credit reporting agencies for businesses. Get a D-U-N-S number from Dun and Bradstreet. Now you are ready to apply for a small business startup loan or corporate secured credit card, whatever form of credit your business needs. Remember, just as it takes time to build personal credit scores, it takes time to build business credit, but doing so is essential if you want to be approved for business loans or other forms of credit without using your own personal credit information.
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