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How to: Build Business Credit, pt.1- Establishing Credit

I wanted to take a moment and provide a quick update on what I've been up to since deciding to go full time with my business goals.

First, I've been investing a lot of my own money into the things I need to run my business. Although that's commonly how most small businesses start out, there comes a time when you require some separation between your personal and business expenses.

Even if your business is thriving and you can afford to re-invest your own money, there are still a few good reasons why you might want to establish some business credit.

I've been reading and doing my research on 'how to build business credit' so that I can spend less of my own money investing into my business. I'm not a financial expert on the subject, but here's what I've learned so far:

What is business credit? Business credit is similar to your personal credit, except it tracks your business, instead of you. It's what financial institutions look at before they extend credit to you.

[Note that business credit generally ranges between 0-100. Unlike consumer credit which ranges between 300-850]

Why do you need business credit? If you plan to do business and buy things from vendors or merchants, OR if you would like to finance a company vehicle, buy a company property, secure a loan, etc, it's best to have business credit to do so. Here's why:

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  • It can determine whether or not certain vendors will establish a line of credit with you

  • The better your business credit, the better APR you get when it comes to financing

  • In some cases- if your business fails, your personal credit isn't affected by what your business defaults on*

  • Separating your personal finances from your business helps during tax season

  • It keeps more of your own money in your pocket for other living expenses

How do you get business credit? These are the 3 steps I took for establishing my business credit. The best part- I got all this done in less than a week and I never even left my house. I'm sharing this information based on first hand experience. I did the foot work- I got the results- now I want to help someone else who may be thinking of venturing down this path.

STEP 1- Get your business an EIN. The first step is applying for an EIN. This comes directly from the IRS and is used to identify your business.

With this number you can file business taxes, open business bank accounts, start applying for business loans and credit cards, apply for permits and keep your personal social security number separate from your business.

[Note: EINs are often required to open a bank account, but not always.]

2- Open a business bank account. Choose a bank that you have a good relationship with and one that best fits your business needs. Most banks offer free business checking accounts as long you keep a minimum daily balance in them.

Don't worry if you don't have a lot of money right away to open the account. You can put a small balance in and grow it over time. You just want the account open for credit building purposes.

Plus, your business bank card will have your business name on it! Makes it feel more official.

Once you have your EIN and bank account established, the final step is getting your business its own credit number!

STEP 3- The last step is getting a 'Duns&Bradstreet' number. This number, unlike your EIN-- is similar to a social security number for your business. This is what lenders look at in order to determine your credit worthiness. You can also look into getting a business number from Experian as well. (I got both since most vendors typically report to a couple different credit bureaus)

Now that those steps are complete, you're ready to start applying for business credit!

A key thing to remember is that any company you decide to do business with must report to the credit bureaus! Otherwise your transactions won't count towards building your business credit score, which is the ultimate goal here.

The easiest way to build credit is to make purchases on a credit card and pay it off before the due date. Building business credit is no different. When lenders and merchants see that your business is capable of maintaining a good payment history, they're more inclined to continue working with you. They may even increase your credit limits or offer better financing rates.

While these options may not be suitable for every business, these are the steps that I took for my LLC.

If you've made it this far down, you're probably ready to start applying for business credit accounts. Head over to How to: Build Business Credit, pt.2 to see which accounts are easiest for new business owners to get.

Thanks for reading and for your continued support!!

The motto is each one teach one. I hope this blog helps someone along their journey. Share if this was informative to you.

See y'all on the next one!


Ashawna Lane

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