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Once your business is set up, you are going to want to work your way into having access to good credit. But how does one build business credit? While it is a little more complex that merely applying for a new small business credit card and paying it off over time, building business credit is a very easy task that is essential to anyone who wants to have a financially stable enterprise.
Building business credit begins with incorporation. You will want to make sure that your business is being run by an entity that is separated from your person; in most cases, it is very unwise to operate your business as a sole proprietorship. You are much better off operating your business as an LLC or a C-corp, each of which have their own merits and flaws for the businesses they represent. When incorporated, you will need to submit your documents of incorporation to the IRS for an Employer Identification Number. Your EIN is like a social security number for businesses, and identifies your business to the IRS for tax purposes. Once you have this, and the requisite number of forms and fees completed and a few merchant trade lines established, you can apply to start a credit profile with Dun & Bradstreet and start developing business credit.
With your Paydex score now developing, the first thing you are going to want to do is apply for a new small business credit card. Like personal credit, business credit is built (at least, in part) by the timely payment of loans. New small business credit cards can be hard to come by when starting up, so a good way to go about your first one is to apply for a secured credit card. This means that you will have to keep a certain amount of money in a bank savings account as collateral for the security of the card. While this will keep some of your capital locked up, this is a great way nevertheless to build business credit so that you can later apply for bigger and more lucrative financing.
Unlike personal credit, business credit is largely dependent upon the profitability and stability of your business. It can take time, but sound business practices are, of course, the fundamental key to building business credit.
