The ability to obtain financing is crucial when setting up, running, and growing any business. Tackling this aspect from the getgo is therefore very beneficial. After all, no entrepreneur likes seeing their hard work unrewarded and possible business growth going to waste. Learning how to build a business line of credit the right way will help you avoid future disappointment and lost potential. Just like people, businesses have credit reports too, and a good business credit score will allow you to flourish. We promise it’s easier than you think if you follow these few simple steps.
The way that an executive team interacts, collaborates and solves problems together is critical. Yet most teams spend the majority of their time focusing on the it (namely, the issues themselves) and not enough time on the we (that is, becoming more aligned and effective at solving those issues).
Get Registered and Go Corporate
First, you’ll need to get a Federal Tax Enterprise Identification Number. Your EIN code is like a Social Security number for your business. You’ll need it when opening a business bank account and writing out business contracts. The Boomerang Groupe Consulting LLC strongly advises you to consider going the corporate route with your business entity. By setting up your business entity and adding Inc. or LLC to your business name, you will begin to legally separate your business and personal credit profile and assets. Having a legal business entity also makes it a lot easier to manage your taxes! For this, too, you will need your EIN code.
Next, you should apply for a free D-U-N-S number by yourself. Whether you set it up or not, offices such as Dun & Bradstreet, Experian, and Equifax Commercial will start tracking you when you interact with at least 4 other business entities. Actively check whether all your vendors and creditors actively report to the various business credit agencies, as not all of them do. If you’re looking to build your business credit reports positively so you can obtain financing without a personal guarantee, this is an important step. After all, it’s no good if your proper handling of credit isn’t being reported on, as it won’t count towards your positive credit score.
Start Building Your Business Credit
Now, it’s time to get your feet wet and apply for that initial trade credit. Be sure to have at least one business credit card, but getting a few can also be helpful. Be cautious, though, and avoid overextending your business finances. Late payments, especially delinquent ones, are to be avoided at all costs!
Furthermore, quite a few lenders handle a 30-70 ratio when considering new additional financing requests, which means they don’t like to see more than 30% of your currently approved business credit line being used across all your credit cards.
Always Pay On Time
Always paying on time will establish and maintain good financial relations with all your suppliers and vendors. Not only will their reports of your net-60 or net-90 term deals help you qualify for a positive score, but being a reliable payer also establishes personal trust, an often underestimated factor in everyday business dealings. Paying your invoices ahead of time can also create an advantage, as some businesses will give you extra credit for this.
Monitor Your Business Credit
Finally, please diligently monitor your business credit history, as it can help you spot inaccurate issues or blemishes. You have the option to file a dispute with the relevant reporting agency whenever you notice an irregularity.
While going through this process, keep your ultimate goal clearly in mind. You must set up an entity that allows you to qualify for loans and unsecured credit lines for your business at optimally low-interest rates. Building business credit the right way doesn’t have to be complicated. It will allow your business to flourish and bloom while protecting your personal assets too. But more tips on that in our next blog article, Five Golden Tips to Optimize Your Business Credit Score.
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