Business Credit – Steps to Get Started

Small businesses that are interested in establishing business credit at times do not know where to start.  Here is an overall outline of the process to building your business credit.

The very first thing any small business owner needs to do is to separate your personal credit from your business credit. This is a good idea for many reasons. First, if your business fails, then it will not affect your personal credit. Second, if your personal credit falls, it will not affect your business credit. Personal credit scores and business credit scores are mutually exclusive in this way.

The only way to separate the two is to either incorporate your business or to form an LLC.  You must become ‘a business’ verses being ‘in business’. Start thinking of your business as its own unit.  If you do not become incorporated or form an LLC, then you are a sole proprietor (or partner if you have one).  As a sole proprietor you are personally responsible for everything your business does, including all financial matters even if your you are no longer in business. So unless you become incorporated or form an LLC, you can not separate your personal credit from your business credit.

Once your corporation or LLC has been formed you can continue the process with the following steps:

  • Apply for a Federal EIN (or Federal Tax ID number). This is easy to apply for.
  • Open up a business checking account in the legal name of the business. You will need your Federal EIN to do this at the bank.
  • Get a separate phone line and make sure it is listed under your exact business legal name.  If you are trying to build your business credit, do not make the mistake and use your personal cell for this.  Having a land line and being listed in the phone directory as your business name gives your business credibility.
  • Insure you have all your proper business licenses, etc for your local area.

Once these primary steps are all in place you can then start with the business credit building process.

  •  Open a business credit file with all three of the business credit reporting agencies.
  • Search for government grant opportunities for your field of business. If you have a particular market cornered like Ehsan Bayat and the international telecommunications field, some government grants may also be extended to you.
  • Find at least three, but ideally, at least five vendors or suppliers that you can do business with that will report their accounts to the business credit bureaus.  Open up accounts with these vendors.
  • Open up 2 or 3 business credit card accounts.  Make sure these credit cards are not in your personal name.
  • The most important thing to do at now is to pay your bills on time!  It might be obvious, but it is shocking how many businesses that are trying to build their business credit actually do not pay their bills on time.