How to Establish Business Credit as A Startup

How to Establish Business Credit as A Startup

As a business startup, it is vital to start the credit building process. Once you meet the corporate compliance, your business is ready to be considered credit ready. The creditworthiness of your company is what lenders will use to extend credit to your business. Because of this, you need to establish business credit to avoid relying on personal financing to fund their business projects. Therefore, find ways that other successful businesses build their business credit to get an idea. Below are steps on how to establish business credit as a startup.

Have a Business Entity 

Setting up a business entity is important. As a sole proprietor, you will not qualify for loans and business credit. Plus, as a sole proprietor, you can only borrow personal loans that you will use for personal and business purposes. Therefore, if you need to receive business loans, you need to separate the personal and business finances, meaning you need to start a limited liability company or a corporation.

How to Establish Business Credit as A Startup

Have a Tax ID Number 

Similar to individuals who have social security numbers. All businesses require to get a tax ID number. When you have this number, you will use it to open bank accounts. Also, it forms a basis for helping you build a business credit profile. To apply for this number, go through the process online, and it’s free. Remember, you need to file your business taxes, and having the tax ID number is the first step to ensuring that you maintain a good tax record so that it will not affect your business credit rating in the future.

Open a Business Bank Account 

Any business that needs to build business credit, require to have a bank reference. Thus, open a business bank account that will help them start on this journey. Have this account for at least two years before you begin applying for loans. So, opening a bank account early enough as your start your business life is essential. Through the bank account, you can improve the business debt level, as it will help reflect the daily balance cash flow.

Be Listed with Business Credit Bureaus 

How to Establish Business Credit as A Startup

Business credit bureaus are essential to every business as they help lenders view your credit scores and ratings. This number is helpful to net 30 account companies and other lenders in determining if your business is credit worthy. Nowadays, almost all lending companies check the credit reports of business when you apply for a loan with them. For this reason, your business should work on establishing a good credit score and monitoring their credit file with credit bureaus.

Build Business Credit History 

In the same way, personal credit scores have a credit history. You need to establish a business credit history. Thus, the more vendors and suppliers report your prompt payments, the more your business credit will improve. However, many small vendors will not report to these companies. Therefore, as a business, you need to have a trade reference sheet with at least three trade references. They should include their name, contact information, and credit limits.

Be Up to Date With Taxes 

How to Establish Business Credit as A Startup

To ensure compliance, file business taxes on time. In a case where you fail to comply, it will harm your business credit rating. So, as a business entity, you need to file returns on time and pay what your business owes. In case you have any issues with your tax payment, consult tax experts to advise you to ensure you stay up to date with your taxes. Therefore, how you sort out your personal taxes should be the same way you sort out the business taxes. Not being tax compliant can negatively affect your business in many ways not only your business credit.

Maintain a Good Personal Credit Rating 

Although your business and personal credits are separate entities, your personal credit has an impact on certain types of business financing. For instance, in a case where the company is new or small. The creditors will look at the personal credit of the shareholder. So, if you have more than 20% of the share percentage, you need to watch out for your credit rating. This is because the lenders will use their score to determine your business creditworthiness.

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