Guest Post By: Meredith Wood, Community Manager (Learn more about Meredith at the end of this post)
Cash flow is the lifeblood of any small business, and as any small business owner knows, it’s one of the hardest parts of a business to manage. However, if your company can build business credit, you will find yourself gaining more opportunities to access cash.
Whatever you do, don’t operate your business on your personal credit. Not only does it make your personal finances vulnerable, but business credit is a much more powerful tool professionally than personal credit. Make the financially fit decision Use these 5 quick tips to start building business credit today.
1) Register – Before you can apply for a business line of credit, you should have an established, registered business. To register, be prepared to establish your business as a legal entity, register your business name, and obtain a federal tax identification number, also known as an Employer Identification Number (EIN). A business’ EIN works very much like a person’s social security number, acting as a unique identifier for government purposes. For more information, check out the SBA’s 5 Steps to Registering your Business
2- Get a business bank account – Banks prefer to provide a business line of credit to a company that has a positive financial track record. To apply for business credit, you will usually need a business bank account that is at least 2 years old. As such, you should open a business bank account as soon as possible. Business bank accounts help you build business credit and keep your personal spending separate.
3- Build a business credit history – Just as you do personally, businesses have a credit history and a business credit score. Once you have an EIN, check with the business credit bureaus (who provide the reports) to make sure your company is listed. Major business credit bureaus include Dun & Bradstreet, Experian and Equifax. When someone is looking to extend you credit, they will consult with these bureaus to determine your credit worthiness.
4- Apply for a business line of credit – Once you have built a good credit history, you may be ready to apply for a business line of credit. Before you apply, you should compare interest rates and terms from different lenders (whether it be loans, net terms or credit cards). When considering your application, lenders will assess your credit worthiness. They’ll look consider how likely you are to repay, how much money your business has in the bank, if you have debt, why you need the loan and your character. However, by getting a line of credit and paying it back promptly, you’ll skyrocket your business credit rating even more.
5- Stay patient – Building business credit it a process. It takes time. You will also encounter plenty of red tape. Just remember to stay patient and spend wisely. It’s worth the financial boost it can one day provide your business.
About the Author: Meredith Wood holds down the community fort at Funding Gates, the first ever online credit department for small businesses. By automating the entire collections process, Funding Gates serves as a one-stop-shop for accounts receivable management. Always looking for good talk on small business, connect with Meredith on Twitter @FundingGates.