How to Build Credit as a Small Business
Tuesday, 3 January 2017
by Erin McAllister, Paralegal
The big question that many small business owners ask is: How do I establish credit for my business? Below you'll find three steps you need to take to establish business credit.
Step 1: Get rid of the Sole Proprietorship Status
Many small business owners never bother with making their businesses official business entities. Experienced entrepreneurs know, however, that operating your business as a sole proprietorship is much riskier than operating an incorporated business or an LLC.
While many small business owners neglect getting a local or state business license, even more small businesses never bother to incorporate or set up an LLC. However, establishing credit for your business means that you need to set your business up as an independent entity. Each state has different rules about how to do this, but for the most part it involves getting an Employer Identification Number (EIN), filing state paperwork, and paying a fee.
Step 2: Start With Credit From Suppliers and Vendors
Just like establishing credit as an individual, when you create a new business entity, your business will have no credit history. In order to qualify for substantial lines of credit, you need to establish a good credit history and operating history. To do so, you should consider asking your suppliers and vendors to set up lines of credit. If you have a good history with the vendors, they will likely be willing to work with you. However, you can always offer to temporarily provide them with a form of a security deposit on your line of credit.
Step 3: Pay Every Bill on Time, Every Time
Paying all bills on time from vendors, suppliers, creditors, service providers, or anyone that does business with your business, is absolutely essential to developing good credit for your business. Making late payments, missing payments, or worse, defaulting, just like for an individual, will cause your business's credit to suffer.
Lastly, if you are trying to establish your business's credit, you can monitor your business's credit report monthly or quarterly for inconsistencies, inaccuracies, and negative marks. Oftentimes, if a negative report appears on your credit history, you can contact the creditor to resolve the report, or you can dispute the report with the credit reporting agency.
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