The following are the basic steps you need to take to establish a business credit profile and help build a business credit report and score:
1. Form a corporation or LLC to operate your business under and obtain an FIN or EIN from the IRS.
You can apply for an EIN number at the IRS website
Forming a corporation or LLC as opposed to structuring your business as a sole proprietorship or partnership has benefits. Corporations and LLCs afford business owners liability protection, and you can build a business credit profile that's separate from your personal debts. You may be able to apply for credit under your business's name and obtain credit without a personal credit check or guarantee if the credit grantor will do so.
In addition, as a sole proprietor or partner in a partnership, you're personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.
2. Comply with the business credit market requirements.
It's extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn't taken the steps to set the company up with the proper licenses and local, state and federal requirements.
3. Prepare financial statements and a professional business plan.
These documents are often required by many credit grantors.
4. Find companies willing to grant credit to your business without a personal credit check or guarantee.
When a company grants your business credit, be certain they report the payment experiences you have with them to the business credit bureaus, like Experian, to help build your business credit report and a financial foundation for your company.
5. Manage your debt so you don't fall into trouble making your payments, which will negatively affect your business credit score.
It's important to monitor your business credit report for changes, especially when you are building a business credit profile.
6. Make monthly payments to credit grantors to keep your business credit profile active.
At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.
David Gass, President & Founder
Business Credit Services, Inc.