How To Build Business Credit?
Establishing business credit is crucial for all entrepreneurs, but especially under-represented entrepreneurs, to access financing, improve cash flow management, and build credibility with suppliers and clients. Here are steps these entrepreneurs should consider:
1. Incorporate Your Business: Form a legal entity such as an LLC (Limited Liability Company) or corporation. This separates personal and business finances, protecting personal assets.
2. Obtain an EIN: Apply for an Employer Identification Number (EIN) from the IRS. This is like a social security number for your business and is necessary for opening business bank accounts and establishing credit.
3. Open a Business Bank Account: Use your EIN to open a business bank account. Keep personal and business finances separate to build a clear credit history for your business.
4. Establish a Business Address and Phone Number: Have a dedicated business address and phone number. This enhances credibility and separates personal and business communications.
5. Register with Business Credit Bureaus: Register your business with business credit bureaus such as Dun & Bradstreet, Experian Business, or Equifax Business. These bureaus track your business credit history.
6. Start with Vendor Credit: Obtain credit accounts with suppliers who report to the business credit bureaus. Pay invoices on time or early to build positive credit history.
7. Apply for a Business Credit Card: Look for business credit cards that report to the credit bureaus. Use it responsibly and pay off balances on time to build credit.
8. Monitor Your Business Credit Report: Regularly check your business credit report to ensure accuracy and track your progress. Dispute any inaccuracies promptly.
9. Build Relationships with Suppliers: Maintain good relationships with suppliers and seek trade credit when possible. This involves agreeing to pay for goods or services after delivery.
10. Apply for Small Business Loans: Once you've established a positive credit history, consider applying for small business loans or lines of credit. Good credit history increases your chances of approval and favorable terms.
11. Stay Compliant and Responsible: File required taxes, maintain proper licenses and permits, and manage finances responsibly. Consistent compliance builds trust and credibility.
By following these steps, under-represented entrepreneurs can gradually establish and strengthen their business credit profile, opening doors to growth and financial stability.
1. Incorporate Your Business: Form a legal entity such as an LLC (Limited Liability Company) or corporation. This separates personal and business finances, protecting personal assets.
2. Obtain an EIN: Apply for an Employer Identification Number (EIN) from the IRS. This is like a social security number for your business and is necessary for opening business bank accounts and establishing credit.
3. Open a Business Bank Account: Use your EIN to open a business bank account. Keep personal and business finances separate to build a clear credit history for your business.
4. Establish a Business Address and Phone Number: Have a dedicated business address and phone number. This enhances credibility and separates personal and business communications.
5. Register with Business Credit Bureaus: Register your business with business credit bureaus such as Dun & Bradstreet, Experian Business, or Equifax Business. These bureaus track your business credit history.
6. Start with Vendor Credit: Obtain credit accounts with suppliers who report to the business credit bureaus. Pay invoices on time or early to build positive credit history.
7. Apply for a Business Credit Card: Look for business credit cards that report to the credit bureaus. Use it responsibly and pay off balances on time to build credit.
8. Monitor Your Business Credit Report: Regularly check your business credit report to ensure accuracy and track your progress. Dispute any inaccuracies promptly.
9. Build Relationships with Suppliers: Maintain good relationships with suppliers and seek trade credit when possible. This involves agreeing to pay for goods or services after delivery.
10. Apply for Small Business Loans: Once you've established a positive credit history, consider applying for small business loans or lines of credit. Good credit history increases your chances of approval and favorable terms.
11. Stay Compliant and Responsible: File required taxes, maintain proper licenses and permits, and manage finances responsibly. Consistent compliance builds trust and credibility.
By following these steps, under-represented entrepreneurs can gradually establish and strengthen their business credit profile, opening doors to growth and financial stability.
Secured Credit Card - Another Way To Build Business Credits
Secured business credit cards operate similarly to personal secured credit cards but are designed specifically for business use. Here's how they typically work:
Remember, CoBiz is a space for entrepreneurs to increase their business sophistication.
- Security Deposit: Just like with personal secured credit cards, when you apply for a secured business credit card, you are required to provide a cash deposit as collateral. This deposit serves as security for the credit card issuer in case you default on payments. The amount of your deposit usually determines your credit limit on the card.
- Credit Limit: Your credit limit on a secured business credit card is typically equal to or slightly higher than the amount of your security deposit. For example, if you provide a $1,000 deposit, your credit limit might be $1,000 or slightly more.
- Card Usage: You can use a secured business credit card for various business expenses, such as purchasing inventory, paying suppliers, covering travel expenses, or other operational costs. It can be used for both online and in-person transactions.
- Payments and Fees: As with any credit card, you are required to make monthly payments on your secured business credit card balance. If you fail to make payments, the issuer can use your deposit to cover the outstanding balance. It's important to pay attention to any annual fees, application fees, or other charges associated with the card.
- Building Business Credit: Secured business credit cards can be particularly useful for entrepreneurs who are starting a new business or rebuilding their business credit. Many issuers report your payment history to business credit bureaus, such as Dun & Bradstreet or Experian Business, which helps establish a positive credit history for your business.
- Potential Graduation: Similar to personal secured credit cards, some secured business card issuers may review your account after a certain period of responsible use. If you have demonstrated good payment habits and responsible financial management, they may offer to convert your secured business credit card to an unsecured (regular) business credit card. This transition may include returning your security deposit to you.
- Choosing a Secured Business Credit Card: When selecting a secured business credit card, consider factors such as the deposit required, credit limit offered, fees, interest rates (APR), rewards or benefits offered, and whether the issuer reports to business credit bureaus.
Remember, CoBiz is a space for entrepreneurs to increase their business sophistication.