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Establishing new business credit is a somewhat complicated procedure, but it is a very valuable process in that it keeps your personal credit separated from your business credit, thus protecting you in the event that things with your business don’t turn out as well as you would like.
Before you can generate new business credit, you must first establish a business. You can either incorporate your business as a C-corp or form a Limited Liability Company (LLC). Both have advantages and disadvantages; a C-corp will give your business security, and the option to go public in the future, while the LLC will give your business managing flexibility and a much greater ease of setting up. Consult your lawyer to find out which one is right for you. Once you have filled out all the paperwork and paid the fees, you can then apply for an Employer Identification Number, which helps identify your business when it is time to do taxes. Then you need to create a bank account and a telephone line in your business’ name.
Once you have your business set up, it is time to build some new business credit. Contact Dun & Bradstreet or Experian (the two principle credit reporting agencies) and have them set up a file for you. This begins the creation of business credit. Now, to start the process, start a few merchant trade lines and have them start reporting. Try also to apply for a small business credit card. This may be tricky at first because few business credit card companies issue card to new businesses, but a little bit of hunting around should find you something. With this done, simply pay your bills on time and pay your credit balances and you will be on the path to building new business credit!
Business credit is slightly different from personal credit. Business credit is based on a scale of 0-100, and puts more weight on the profitability of the enterprise, rather than just whether you are paying bills on time or not. It does, however, give you access to much larger pools of credit than would be accessible to an individual. Business loans tend to have high balances (and high interest rates), giving you excellent opportunities for using large capital.
