How to Establish Business Credit

by | Feb 10, 2023 | Billsaver, Building Credit, Understanding Credit Cards

If you own a small business, you can build credit for your business, just as you can build your own credit. Your business will get a credit score similar to your personal credit score, but instead of representing your ability to pay back debt, it will reflect the likelihood your business will pay back a debt. The better credit your business has, the more money your company can borrow. This guide will teach you how your business can establish positive credit.

What is Business Credit Good For?

If you do not see the use in business credit, it will be hard to build the motivation necessary to establish business credit. Basically, your business credit can be used just like your personal credit. Business credit can help you rent an office space or get a business credit card or loan. Building business credit is especially beneficial for those who have poor personal credit, because their personal struggles will not affect their business. Small business owners will be able to get credit lines or loans because their business has proven trustworthy, even if their own credit is questionable.

Getting Started

The first step to building business credit is obviously to establish a business. You will need to create an LLC, legal partnership or corporation. In many states, you can register your business online or with the Secretary of State’s office. You will need to give them information about your company and overall plans, and they will be able to tell you which option is the best for you.

After you register your company, you will need an Employer Identification Number (EIN) from the IRS. An EIN is essentially a social security number for your business, and you can use it for a variety of tax purposes and loan applications. It is free to apply for an EIN, and you can do it over the phone or online. All of your business credit will be linked to this number.

Finally, it is a good idea to have a separate bank account registered in your business name. You can pay yourself from this account, and it will help you keep an accurate accounting of your business expenditures and earnings–information you will need when you apply for loans. Keep copies of all of your business tax returns so you have a record of income and losses for the future. The more information you can provide to lenders, the easier it will be to get credit.

Establishing Business Credit

If you have the right documents, it is not difficult to build credit for your business. You can apply for a starter business credit card, such as the Capital One Spark Classic for Business. Once you have established credit, you can apply for cards that require good to excellent business credit, such as the Blue for Business Credit Card from American Express. When you apply for these cards, you will need your EIN.

Once you have a business credit card, use it for your business expenses. Pay it off every month online, so you do not have to worry about interest or accruing debt. The goal is to show regular activity on your account. After using the card for six months to a year, you may be able to get a better card or a small business loan.

Keep in mind that establishing credit for your business will take time.