How to Establish Business Credit for Your Home or Small Business

In the United States most businesses at some point will have to seek some type of lending assistance. Whether it is for business start, business expansion, or just to cover the expenses during an economic downturn, your ability to obtain financing for your business could determine whether it will survive. Despite your less than perfect or even bad personal credit your business can obtain A1 credit with a little knowledge and work.

First, your business must stand on its own two feet. This means you must establish your business as separate and independent entity from you as a person. You will have to incorporate or form a Limited Liability Company (LLC) to give your business its own identity and it will, also, protect you personally. It is important to note that the owners of sole proprietorships and partnerships are personally liable for debts of the business, so you will not be able to obtain separate credit with these business structures.

After you have incorporated or formed a LLC for your business you will have to obtain a Federal EIN. Federal EIN or Tax ID Number, can be described as your business’ Social Security Number. This number maybe obtained on the phone or online by contacting the Internal Revenue Services (IRS). After you have received your Federal EIN Number you need to open a checking account in the name of your business and using your business’ Federal EIN Number. Your monthly charges maybe a little more and you maybe required to make a larger deposit to open a business account but it is a necessity that you open a business account and not a personal.

Next you have to open business credit files with the business credit reporting agencies. The three main business credit agencies are Dun & Bradstreet, Experian and Business Credit USA report. These and other agencies report business credit in very similar ways as personal credit. Once this is done you have to establish credit and build your credit score.

To get started you must obtain business credit cards that are not personally linked to you. You should obtain 3 no more than 4 credit cards. When you receive the cards withdraw half of your line of credit on each card. Deposit this money in your business checking account. Over the course of the next four months pay off all of the credit cards by making monthly payments. After you have paid off all of your cards close one of the credit card accounts.

Also, go to the bank and apply for a business loan for a couple thousand dollars for a term of 6 months. You may have to co-sign for your business but that’s ok. Just make sure the bank list your business as a primary guarantee and that they will report your business’s payment history to the business credit reporting agencies. Again, deposit the money in the business checking account and pay the loan off in three to four months, making monthly payments. After the loan is paid wait two months and go back to the bank and borrow another couple thousand dollars. This time it is important that the loan is not personally linked to you. Your business should be the sole guarantee of the loan. Pay this loan off in 4-5 months.

After you have paid the bank always maintain a minimum balance on two of your business credit cards. The total balance for both cards should not be no more that $500. You may also contact a few vendors and suppliers and request a small amount of credit for your business. Follow these steps and you are on your way to establishing A1 credit for your business.

Austin Clark, is a business attorney and consultant. He is the editor of WIZ AT BIZ ,an online business resource center and Wizatbiz PRODUCTS