« »

Monday, July 22, 2013

Building the blocks of business credit

Business credibility is verified with an established financial history
Company registration with credit bureaus helps expedite business credit

Businesses seek a larger amount of funding from banks and financial institutions than do individuals, but Mashable.com warns that many institutions are wary of giving funds to a start-up company. The only way to get the loans to improve company growth is by building up your company’s credit history.

Get the company registered

Set up your business and get all of your tax documents together. When all of the paperwork is gathered, register the company with the major credit bureaus. Chron.com suggests the credit bureaus do not automatically add a business to their system when a company is formed. It is your responsibility to inform them and register with the appropriate business numbers that are provided after applying for state and federal taxes.

An Employer Identification Number, or EIN, is used instead of a Social Security Number when you register with the IRS and state or federal governments. It allows you to separate your business finance from your personal finance in the eyes of the government and with credit rating agencies.

The Small Business Administration suggests that you can get on the radar of the major credit bureaus by registering your company with Dun and Bradstreet to get a DUNS number. The company is the primary purveyor of business credit information for businesses, that can be used by banks and credit agencies.

Open a business checking and savings account

Applying for any form of credit requires a checking or savings account. USA Today suggests that you open both — the savings account provides collateral that can help you take out small loans and credit cards until your credit is established.

A DUNS number and the EIN number can be used to open a savings and checking account under the business name. Use the numbers so that you will not attach personal assets to the business assets.

Apply for credit cards

After your company is established and you’ve registered, getting a credit card is the next step to building your business credit. You can apply for an American Express business credit card or one from another reputable company. Even small banks offer credit cards, though they may not come with the perks offered by larger players.

As a general rule, credit cards are easier for start-up companies to obtain than loans because they do not require a certain time period to build up credit. KDriley.co.uk suggests that 65 percent of entrepreneurs use credit cards because they are fast and convenient when it comes to purchasing necessities. Use credit cards wisely so that you can repay the full amount each month. By repaying the full amount, you will limit your liability and prevent building up too much debt for your company to manage.

Establishing your credit as a company is different than working out the details of personal credit. Before you can start, register your company so that credit cards and bank accounts are separate from your personal accounts. Take out credit cards as a funding solution that allows you to establish a good credit history. Taking out larger loans is possible only after you get the company established.

Image license: MorgueFile; royalty and attribution free