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Five steps to establishing your business’ credit

November 28, 2012

business credit

How to establish business credit

One of the first things you’ll have to do after starting your own company is establishing business credit. You may be used to managing your personal credit cards and credit score, but business credit differs in that it determines how eligible your company is to receive business funding. Establishing business credit is a multi-step process, but once everything is finalized, your company can begin conducting business and proving its credibility as a financially sound business entity that has a great offering and can turn a profit.

1. Establish a Business Entity

In order to receive funding, your business must be separated from its owners. There are several legal business structures to choose from, each of which has differing tax benefits and tradeoffs, so meet with a CPA for advice before deciding.

2. Apply for an EIN (Tax ID Number)

Your EIN is a number that IRS assigns you in order to identify your business. You can apply through the IRS website, and once your number has been assigned, you can set up a business account.

3. Set up a Business Bank Account

Your business is run separately from your personal finances and will need at least one bank reference. Creditors will look to your account’s transaction list to analyze your business cash flows and determine if you are profitable, and have enough of a positive cash flow, to pay back any loans received.

4. Establish Business References

Always be mindful of your company’s standing with the Better Business Bureau. If your business isn’t listed, you can apply for a number through the firm’s website, for example Dun & Bradstreet. Your rating determines your business credit score which can affect the amount of funding you receive. In addition to this, make sure the vendors you’re working with are reporting your positive payment history; if not, track your history in a reference sheet.

5. Don’t Forget About Your Personal Finances

Just because you have business credit, don’t forget about your personal finances, because your business if new, creditors will often look to your personal finances to see how you manage money. If your finances are in a shamble, that can reflect poorly on your applications. Apply for a business credit card and begin making purchases and paying them off as quickly as possible to establish credibility. Be sure to do this with your personal credit as well.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

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