Business credit is credit established to a specific entity's tax identification number. Establishing business credit allows the owner(s) to establish credit separate from their personal credit. Building business credit will allow you access to lower insurance premiums, approvals to low-rate business loans, better funding and more favorable terms with vendors.
" Not having business credit cost me MILLIONS! "
When I started my first business, the last thing I was thinking about was ‘business credit’. In fact, I was so overwhelmed with the day-to-day operations I barely had time to eat, let alone time set aside to focus on my business credit. To be frank, my personal credit was in shambles so “credit” in general was not high on my priority list. Like most people, I only worried about credit when I needed it and by that point, it was too late. I implore you to learn from my mistakes and take the time to establish your business credit. Not having business credit cost me MILLIONS! DO NOT make the same mistake.
7 Steps To Establishing Business Credit
1. Incorporate your Business to ensure the company is a Separate Legal Entity
The average person is oblivious when it comes to business credit. Most people's idea of starting a business is simple: come up with a business name, create a social media account or website and start selling items. 80-90% of new business owners share this philosophy; however that is far from the government's definition of a business. The first step to establishing a business is registering your business with your Secretary of State.
2. Obtain a Federal Employer Identification Number
Once you have registered your business with your local secretary of state you will need to obtain the business Employer Identification Number. This step is crucial to establishing business credit, without an EIN it is impossible to attach any credit to your business.
3. Set Up Designated Business Phone Line In Your Business Name
It is very common for new business owners to simply use their personal phone number as there business number. Although it is convenient it is not professional and is frowned upon by lenders. The goal is to establish your company has a separate LENDABLE legal entity. Be sure to register your business phone number with 411 immediately once acquired.
4. Open A Business Bank Account In Your Business Name And EIN
Prior to opening a business bank account you want to do your research on several to make sure that your needs are met. It is unwise to do anything without proper research. I personally recommend that you open an account with a banking institute that is a member of the SBFE (Small Business Financial Exchange) or with a local credit union. Check out our blog "SBFE vs CU" to see the advantages of each.
5. Register With Dun & Bradstreet And Apply For Your Business DUNS Number.
HOORAY! You officially have a separate legal entity!! Pat yourself on the back! Seriously. Now we can start to generate credit! This step is essential please do not skip over it. You will need to register with Dun & Bradstreet and apply for your business DUNS number. Dun & Bradstreet is 1 out of the 3 major business credit bureaus. You can not generate a file with Dun & Bradstreet without applying for a DUNS number. Just like your personal credit report potential lenders will review your business credit report with D&B when determining account approval.
6. Establish Accounts With Vendors & Supplier That Report Payment History
Be strategic when selecting vendors to open accounts with; all vendors do not report to the business credit bureaus. If you own an established operating business and have vendor accounts I suggest that you contact them and verify if they report and if so to which business credit bureaus they report to.
7. Pay Your Bills EARLY – NOT On Time – EARLY!!!!!
Once you have you vendor accounts (NET30) make sure to pay your bills early. Not on time but EARLY! Unlike personal credit your paydex score is determined by when you pay your bill. Business's that pay their bills early will have a higher paydex (credit) score than those that simply pay by the due date (on time)..
"It is your job as the 'Boss' to have systems in place to make sure that everyone can be adequately taken care of."
There will always be a time, in any business, that the cash flow will be tight. Having established accounts with vendors will help offset the amount of cash immediately needed. Credit cards and LOC's will enable your business to still operate during down times and cover things like payroll. I personally had to downsize and then close down a very successful business because we did not have the right foundation to fall back on when the cash flow was tight. When you are a business owner you are responsible for not only the lively hood of your family but the families of each employee you have. It is your job as the "Boss" to have systems in place to make sure that everyone can be adequately taken care of. The most heart breaking thing is to have 30 employees that you must face in person and tell them that they no longer have employment. Learn from my mistakes, your family and the families you directly impact will thank you.
You have successfully established your business as separate legal entity and you are now generating business credit. Don't stop there! I encourage you to apply for: fuel cards, credit cards, lines of credit and loans. Not sure where to start? Click HERE to receive a list of places to apply for business credit.