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Business credit is slightly different from personal credit, and the means of developing it are a bit more challenging. After all, business credit reflects the creditworthiness of a fictitious legal entity, not an individual person. However, it is not that difficult a task; following these steps will show you how to obtain business credit in the quickest and easiest manner.
First, the business must be created. You must decide whether you want to do this through a C-corp (which creates more stability and allows the option of going public later), or a Limited Liability Company (which offers more flexibility and ease of creation). Both have their pros and cons, and you may want to talk with your lawyer to find out which one is right for you. Once the business entity is created, you will have to register it with the IRS and get an Employer Identification Number (EIN). The EIN acts like a social security number, and helps the federal government identify your business when it is time to do your taxes.
After this, you have to complete the nitty-gritty of the initial business establishment process: filling out all the necessary extra state and federal forms, pay the fees, and create a bank account and telephone line in the business’ name. Now, the business is ready to be registered with one or more of the business credit reporting bureaus (Dunn & Bradstreet, Experian, Equifax and Business Credit USA).
Ok, now that you have your business set up, let’s talk about how to obtain business credit. You will want to open about five lines of trade with various merchants through the business, and try and get a business credit card. Your first business credit card is a bit tricky, because of the 500 or so existing credit cards, only about sixty will be willing to lend to new businesses. You can also try getting a loan, and using one of the many programs available to new entrepreneurs, but getting a business credit card will probably be easier when it is all said and done. This process should take about three months in total, so don’t feel like you are doing something wrong if it feels like it is taking forever.
Now, you will want to start showing profits. Business credit is not as exclusively weighted on just whether you repay your debts in a timely fashion, but rather places emphasis on the profitability and stability of your business. Creditors like to see strong established businesses that will give them a solid return on their investment. Remember, 90% of businesses fail within the first few years, and creditors are well aware of this fact!
There are a few other trick you may want to know about how to obtain business credit, like the fact that homeownership can sometimes be a great advantage when seeking credit, but for the most part it is a mixture of solid business practice combined with the same credit building strategies of personal credit.
