Why You Should Have Business Credit — and How to Get It

Personal credit and business credit — what’s the difference? And why should someone with a small business worry about the latter?

The #1 reason small-business owners should establish business credit is that it doesn’t show up on personal credit reports, says Joe Lawrence, CEO of Business Credit Workshop. The more personally secured your business credit is, the worse your personal credit score becomes because it looks over-leveraged, he explains. Reason #2: Obtaining business credit will also help you to secure better rates on company credit cards and loans.

Here’s a step-by-step plan for establishing business credit.

  1. Create a separate entity. In order for your business to have a credit record, it must exist as its own entity, such as a corporation or limited liability company. By taking this step, your financial liability as a business owner can also decrease, Lawrence notes. Once you structure your business, you’ll need to apply for a separate tax ID number (EIN) with the IRS; you’ll no longer be able to use your social security number to file business-related taxes.
  2. Get listed. Register your business with the three main business credit bureaus. “This includes Dun & Bradstreet (you’ll have to get a D-U-N-S Number), Experian Small Business, and Equifax Small Business,” Lawrence says. In addition, he notes that lenders like to see a business’s main telephone number published, so list yours in the Yellow Pages, Superpages, or 411.com.
  3. Build trade lines of credit. “Similar to personal credit,” Lawrence explains, “a small business needs to establish trade lines of credit in order to get a business credit score.” He recommends starting with businesses that offer accounts for new credit histories, such as Office Depot, Staples, and Valero. In addition, approach companies that you already do business with on a credit or invoice basis, such as your attorney, accountant, or consultant, and ask them to begin reporting your business credit history to the credit-reporting bureaus.
  4. Open a business bank account. Lawrence recommends opening a business checking account with a community bank or one that caters to local businesses — and then making it a point to meet the vice president and introduce your business. This, he says, will make the bank more amenable to extending credit when you need it, because you will have an established history and relationship with the bank.
  5. Build your credit history. Once you establish multiple trade lines of credit, they should show up on your credit profiles within 30 to 60 days (on average), Lawrence says. Continue to pay your bills promptly, and watch your credit rating go up. For example, Lawrence says that Dun & Bradstreet’s PAYDEX score system ranks businesses on a scale of 1 to 100, and small-business owners should aim for a least an 80.
  6. Apply for credit. “Assuming your company has good business-credit history, a solid business plan, and relationships with banks that are regularly lending to small businesses, then your business is able to apply for business credit,” Lawrence says. He recommends starting with a business credit card, then working your way to a business loan or line of credit. You may even begin to receive pre-qualified offers in the mail for business credit, he says, and you should accept them because the more positive trade lines of credit you have, the better.

Of course, nothing can replace the advice of a legal adviser or qualified tax professional, especially when it comes to something as important as establishing business credit. Contact your attorney or accountant and ask what steps you should take.

About Suzanne Kearns

Suzanne has been a full-time freelance writer for 20 years. She’s written for numerous business and financial publications, such as Entrepreneur, Reason, and Home Business Magazine. She blogs regularly for Money Crashers and Feefighers, and ghost blogs for a few well known CEOs. Her goal is to eventually work from a remote island equipped with Wi-Fi.
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