One of the mistakes we can make early on when we start a new business is to operate under the assumption that we - as individuals - are the business. When I started my small business, I soon discovered my business wouldn't go far with this way of thinking, and if it went down, I'd go with it. The moment I registered my business with the state, it became a stand-alone entity, separate from me. It needed to develop its own credit worthiness so my personal credit was not on the line.
How Is Business Credit Established?
I learned from experience that there are two paths to take when building strong business credit for a company, and I needed both. The first was to establish relationships with vendors and the second was to obtain credit.
The first step I took was to register my company with Dun & Bradstreet. This is one of the most used credit reporting agencies in the United States. Credit reporting for businesses does not happen automatically; I had to pay to enroll in one of the agency's vendor reporting programs, but I considered it an investment in my company's future. I needed a brick-and-mortar address and land line telephone number to register.
My business works with just a few vendors (that is, companies that provide products and services that I need to operate my business); they are the electric company, the phone company, and the supplier for parts used in manufacturing my products. As I established accounts with my vendors, I gave them my business name and federal tax ID number, or EIN. I didn't use my personal name or Social Security number.
The goal was for my business to develop a history of financial responsibility. Paying my business bills on time without fail helped me begin to establish good business credit.
As soon as I registered with the state and got an EIN, I started applying for business lines of credit. I learned there are several large retail chains, such as office supply stores, that automatically offer lines of credit to new businesses. I asked all the businesses I worked with if they offered this and then I started using these lines of credit to start establishing a credit record. As with my personal credit, I didn't use more than 40 percent of the total credit and I paid the bill in full each month.
After six months of following these paths simultaneously, the results began to turn in my favor; my business credit score made its way up. I was able to build a credit score for my business that made my company a good risk for a commercial lender.
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