Tips to Build Business Credit

Building business credit is an important part of company growth. It doesn’t matter if you work as a sole proprietor, LLC, or a corporation; it’s possible for your business to build a credit file unique from your personal one.

However, building business credit doesn’t happen automatically. Use the tips and information below to help with this goal.

Select the Right Business Structure

If you want to make your business a distinct legal entity, you must choose the right business structure. This includes LLC, corporation, or LLP. Sole proprietorships don’t create a separate business entity.

After choosing the right structure, you must register the business. This depends on the structure you choose and your location.

Acquire Your EIN (Federal Tax ID Number)

You can use the IRS assistance tool to apply for your federal tax ID. This is a nine-digit number given to your business and used for things like filing company tax returns, opening a bank account for your business, applying for business credit, and applying for permits and licenses.

Open a Business Bank Account

After acquiring your federal tax ID, it’s a good idea to open a business bank account. This is a necessary step if you want to create a clear and undeniable separation between your personal and business expenses.

Your banking relationships play a huge role in your business’s funding potential. Not only will this bank account be a bank reference on your credit applications, but it also offers essential data that a potential lender will use when reviewing your funding application.

Establish Credit with Reporting Suppliers and Vendors

One of the fastest and easiest ways to build your business credit is by applying for net terms with your suppliers and vendors. As you purchase inventory, supplies, or other necessities on credit, the purchases and payments you make are reported to credit agencies.

This activity helps to create the credit profile for your business and your business credit report. Your business credit score can be generated after your company has a few reporting trade lines.

Make sure to choose suppliers and vendors who report to business credit reporting agencies. Every relationship you establish also serves as a reference that you can use for credit applications down the road too.

Establishing Business Credit

While establishing business credit takes time and effort, it’s an important step for every company. Be sure to keep the information here in mind, which will help you along the way.