Establishing Your Credit as a Small Business

by Miranda Marquit

One of the most frustrating things for any small business owner is establishing credit. However, you know that you need access to credit if you expect to you grow your business effectively. Financing helps keep things moving in the world of business — even for small businesses.

Establishing your credit history as a small business, though, isn’t always easy. Indeed, it can be difficult, and you may have to even put your personal credit on the line for your business. As you strive to build your credit as a business, here are some steps to follow:

1. Set Up a Business and Apply for a EIN

First, you need to realize that you won’t be able to establish business credit if you are a sole proprietor. Instead, you will need to set up as a corporation or as a LLC. Once you have figured out a business structure (an accountant can be valuable in assessing your needs now, and the possibilities for the future), you need to apply for an Employer Identification Number from the IRS.

Your EIN is your tax ID that shows that you are reporting as a business. Additionally, you won’t be able to open a business bank account without one.

2. Open a Business Bank Account

Your next step is to open a business bank account. At the very least, business checking is a must. Establishing your business as a separate entity is important if you want to be able to eventually build your business credit. Realize, though, that many banks won’t consider lending your business money until you have had the account for at least two years. You will need to make sure your cash flow is obvious, and that it is clear that you can handle business debt.

3. Apply for a DUNS Number

There are credit bureaus for businesses as well. Dun & Bradstreet is one of the main business credit bureaus. The company issues what is known as a DUNS number. When you do business with vendors, you should give them your DUNS number. That way, when they report that you have made payments on time, it is reflected in your business credit report. You will need your EIN to receive a DUNS number. Getting this number is free, and it can be helpful as you work to establish your credit history.

4. Build Your Credit History and Establish Trade References

Now that you have your business identity established, it’s time to work on building your credit history. One of the easiest ways to do this is with a business credit card. However, if you are just starting out, it might even be difficult to get a credit card in your business name.

You may have to rely on your personal credit to help you get a business credit card. If you speak with your banker, about a business credit card at the bank where you have your business account, you might have more success. Whether your personal credit is used or not, it’s important that your credit card be in the name of your business. It’s vital that your business credit be established separately.

Finally, augment your business credit report with a trade reference sheet. Some small vendors may not report to Dun and Bradstreet. So, list them out, with contact information and credit limits, and have it available to go with your “official” business credit report. That can help you show banks that you really do have a history of paying on time.

Published or updated December 12, 2011.
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