Business credit is a vital tool for entrepreneurs, allowing them to access funds and resources to help build and expand their businesses. It also helps business owners establish their creditworthiness and create a financial track record.
Obtaining business credit is a process that requires careful planning and preparation, as lenders are more likely to extend credit to businesses that demonstrate a long-term commitment to financial responsibility. In this article, we will outline 11 steps to get business credit to build your business.
Step 1: Establish Your Business
The first step to obtaining business credit is to establish your business. This includes registering your business with the state and creating a legal business entity, such as an LLC or corporation. Doing so will allow you to open a business bank account, obtain an Employer Identification Number (EIN), and apply for a business credit card.
Step 2: Open a Business Bank Account
Opening a business bank account is an important step to getting business credit. It helps to separate your business’s finances from your personal finances, which is essential when applying for business credit. Additionally, many lenders require a business bank account to apply for credit. Having a business bank account also allows you to easily track your business’s income and expenses.
Step 3: Create a Business Plan
Creating a business plan is essential when applying for business credit. A business plan is a document that outlines your business’s goals and objectives, as well as how you plan to achieve them. It should also include detailed financial information, such as income and expenses, cash flow projections, and a break-even analysis. Having a well-developed business plan will help you demonstrate your business’s creditworthiness to lenders.
Step 4: Obtain an Employer Identification Number (EIN)
An EIN is a nine-digit number issued by the Internal Revenue Service to identify businesses for tax purposes. It is required for businesses to open a business bank account, apply for business credit, and hire employees. An EIN can be obtained for free from the IRS website or by calling the IRS’s Business & Specialty Tax Line.
Step 5: Apply for a Business Credit Card
Applying for a business credit card is a great way to start building business credit. When you apply for a business credit card, the issuing bank will look at your personal credit history, as well as the credit histories of your business partners, if any. It is important to remember that a business credit card is different from a personal credit card, and the terms and conditions may be different.
Step 6: Monitor Your Credit
Monitoring your credit is an important step to getting business credit. Check your business’s credit report regularly for accuracy and to make sure that there are no errors. If you find an error, contact the credit bureau right away to have it corrected. Additionally, you should also keep an eye on any changes to your business’s credit score, as it can affect your ability to obtain credit.
Step 7: Apply for Business Loans
Business loans are a great way to get the capital you need to start or expand your business. Before applying for a loan, it is important to research the different types of loans available and find the one that best meets your business’s needs. Additionally, you should also compare lenders to find the one that offers the best terms and interest rates.
Step 8: Establish Trade Credit
Trade credit is a type of credit that businesses can use to purchase goods or services from suppliers. It is important to establish trade credit with vendors, as it helps to demonstrate your business’s creditworthiness. Establishing trade credit with vendors also allows you to pay for goods or services over time.
Step 9: Get a Credit Line
Getting a credit line is another way to access funds for your business. A credit line is a pre-approved amount of money that a lender will provide to a business. The credit line can be used for a variety of purposes, such as purchasing equipment or supplies. Additionally, a credit line can help you get access to funds quickly and easily.
Step 10: Monitor Your Payments
Monitoring your payments is an important step to getting business credit. It is important to make all payments on time, as this helps to demonstrate your business’s financial responsibility. Additionally, it is also important to pay more than the minimum payment due on credit cards, as this will help you reduce your debt faster and improve your credit score.
Step 11: Maintain Good Credit
Maintaining good credit is essential to getting business credit. Make sure to pay all bills on time, and keep an eye on your credit score. Additionally, you should also avoid taking on too much debt, as this can have a negative impact on your credit score.
Final Thoughts
Business credit is an essential tool for entrepreneurs looking to build or expand their businesses. It can help you access funds and resources, as well as establish your creditworthiness. However, it is important to remember that obtaining business credit requires careful planning and preparation. By following the 11 steps outlined in this article, you can increase your chances of getting the business credit you need to build your business.
