Why should a new business owner establish business credit? After all, the owner probably already has plenty of personal credit. That should accommodate any purchasing or borrowing needs, shouldn't it?
Perhaps it won't, and using personal credit for the business could do long-term damage to both. Problems in either area could spill over into the other, making it impossible to acquire the funding or products and service to keep either one a going concern. For example, being unable to pay the rent on a business location would affect the credit report of the person who leased the building... unless that person was wise enough to establish business credit before taking on the lease. The same thing could happen in reverse. Suppose the business owner defaults on his personal car note. Unless he has credit in the name of the business, that default would affect his ability to purchase or lease a vehicle for work purposes.
So it's apparent that a business owner needs to establish business credit as early in the life of his company as possible. There are a number of ways to go about it. All banks have programs that provide corporate credit options to small businesses. A logical first step would be to establish an identity for the business. This is as simple as selecting a name and acquiring a DBA registration. DBA stands for "doing business as" and identifies the business owner/operator. For example, Joe Smith could start a plumbing business with a DBA of "Joe Smith, dba Handy Plumbing". Then he could use the name Handy Plumbing on all of his business documentation and accounts.
Another way to create a business identity is to incorporate the business or create an LLC (a limited liability company). This offers even more protective division between a business owner and his business obligations. Obtaining an employer identification number (EIN) from the federal government is a good idea, too. And no business will last very long without a checking account in the DBA or corporate name. After all, those regular monthly business bills like the rent and utilities must be paid somehow and fetching money orders will get old after a while. Another important item to acquire is a telephone number in the name of the business. While no expensive phone book ad is required, the name and number should be listed in the local business directory.
All of these items will form a base that will help a person establish business credit. But it probably won't be enough. A wise business owner will set up lines of credit with local vendors who will supply services or products for the business. Most vendors are small business owners themselves and so should be willing to help out a potential customer. Thirty to ninety day accounts can be established at such vendors and they can be asked to report information on the business owner to the credit bureaus.
Another simple method of establishing credit in the name of the business is to take out a credit card in the name of the business. This could be supplied by the same bank that supplied the business's checking account. Of course, it is important to keep this type of credit under control. Interest charges can quickly add up. Of course the bank won't report it as legitimate credit unless the card is used at least for a few purchases.
Once all of the above steps have been taken, the new business should be well on its way to establishing a healthy credit record. If so, it can then proceed with applying for loans or bank financed lines of credit in order to expand or accelerate its growth.
Corporate Credit Concepts specializes in Establish Business Credit. For more information about Establish Business Credit and how it might benefit your business, please CLICK HERE for a free phone consultation.