Building business credit is an essential part of running a successful business. It allows a company to establish trust that they will make payments on financing and loans, as well as provide easier access to business insurance and supplier relationships. Here are some steps on how to quickly establish credit for your business:
1. Establish your Business as a Legal Entity
Registering a business as a separate legal entity, such as an LLC or corporation, distinguishes your business apart from yourself as an individual. If you continue to operate as a sole proprietorship and not establish a legal entity, there is no separation between your personal credit and business credit. Therefore, any funding and credit you acquire is tied to your personal credit reports.
The first step to establishing a legal entity is registering your business. The process for doing so is dependent on the location of the business as well as its structure. For most small businesses, it’s as easy as registering your business name with your state and local governments, namely the Secretary of State.
2. Start Accounts with Payment History
There are several ways to create accounts that will report to business credit bureaus, which demonstrates past payment history and helps show how likely your business is to pay on time in the future. A few of these accounts include:
- Suppliers and vendors
- Business loans and financing
- Business credit cards
Opening a business credit card is one of the easiest ways to start building credit quickly, plus you can benefit from associated credit card perks such as cashback or travel points. If you qualify to open more than one, that can help you increase cash flow with a higher credit limit — however, be careful not to overextend and risk damaging your credit score.
3. Get a Federal Tax ID Number (EIN)
An EIN is a nine-digit number assigned by the IRS that is required for filing business tax returns, opening business bank accounts, and applying for licenses and business credit. It is basically the equivalent of a social security number for your business. You may not need an EIN if you are operating as a single-member LLC, but any company that retains employees or operates as a corporation or partnership will need one. You can apply for an EIN for free online through the IRS.
4. Open a Business Bank Account
Once you have an EIN, opening a business bank account will allow you to create a separation between your personal and business expenses. This enables accurate bookkeeping for tax filing, improves and clarifies your company’s funding potential, and provides clear data for lenders and vendors.
Have additional questions about building your business credit quickly? Our expert bankers and financial advisors at Republic Bank can help you set up the right accounts and continually monitor your business credit reports. Reach out to us at 800-526-9127 to learn more.