How to Build BUSINESS CREDIT
Give your new business a chance to beat the odds!
Starting a new business is an exciting journey filled with dreams and aspirations. As you embark on this adventure, one crucial aspect often overlooked is establishing solid business credit.
Like personal credit, a strong business credit profile plays a pivotal role in securing financing, favorable terms, and overall financial stability for your new company.
You can establish credit for your business after starting it and utilize it to continue running your operations. However, most don’t realize that you can also use newly established business credit to start your business too!
TRUE STORY:
I've been an accountant, turned entrepreneur, for 30 years, and I’ve seen a lot of start-up “combos” if you will. One that impressed me most was a new entrepreneur, desperate to start a business because she recently lost her job. In fact, She ran across her business idea while looking for a job. She fell in love with the company's services more than the job itself. Thinking like an entrepreneur, she decided to do a little research. As she describes it, she was hooked - on the business name, services, and how easy it seemed to do.
Of course, she decided to begin her own business instead! Needing $13,000 to start, she took $5000 from her American Express, borrowed $5000 from her uncle, and used her last $3000 in the bank to get the capital needed.
By year-end, approximately 8 months later, she had cleared $800,000 in sales!
However, when she shares her story, the most amusing part is how distressed she gets over spending her last $3000. Apparently, she got many credit card offers immediately after registering the business and could've used a business credit card instead.
Drawing on my experiences, I can confidently affirm that the majority of successful entrepreneurs share a few common funding strategies:
Received Assistance other than capital
Leveraged Other People's Money
Utilized Personal Funds or Credit
Established Business Credit
It's that straightforward, and I want you to start your business with a clear understanding that even micro businesses, solopreneurs, and small businesses can also establish business credit!
Lay a solid financial foundation from the get-go. Recognize that:
You might not necessarily need an investor, there are alternatives;
You may not require an enormous loan, so bootstrapping could be a viable route;
Even if your personal credit isn't stellar, you can still tap into business credit and start fresh.
In this blog, we'll walk through the simple steps of establishing business credit, emphasizing its significance for new businesses, and shedding light on the myriad benefits that come with it.
Let’s get started on this journey to financial empowerment together!
WHY BUSINESS CREDIT IS VITAL:
Access to Financing: Establishing a strong credit profile allows your business to access various financing options, such as loans, lines of credit, and business credit cards. Lenders and investors rely on your credit history to assess your business's financial health and its ability to repay borrowed funds.
Better Loan Terms: A higher credit score often translates to more favorable loan terms, including lower interest rates and longer repayment periods. This can significantly reduce your business's financial burden and improve cash flow.
Supplier Relationships: Strong business credit can help build trust with suppliers and vendors. This can lead to better terms, such as extended payment windows, discounts, and priority access to products or services.
Separation of Personal and Business Finances: Establishing business credit creates a clear separation between your personal and business finances, protecting your personal assets in case your business faces financial difficulties.
Business Growth: With better access to capital, your business can invest in expansion, hire more employees, launch new products, and seize opportunities that arise.
Flexible Cash Flow: Access to credit provides a safety net during cash flow fluctuations, enabling you to manage expenses and cover unexpected costs.
SIMPLE STEPS TO BUSINESS CREDIT:
Obtain Necessary Licenses and Permits: Research and obtain any required licenses or permits specific to your industry and location.
Establish a Business Address: Secure a physical business address, either through leasing an office or using a virtual office service.
Obtain a Business Phone Number: Obtain a dedicated business phone number to establish credibility and separate business communication.
4. Choose the Right Business Structure: Before you start building business credit, ensure you have a legal business structure in place, such as an LLC or corporation. This separation is essential for establishing distinct credit profiles.
5. Obtain an EIN: An Employer Identification Number (EIN) is like a social security number for your business. It's required to open a business bank account and establish credit in your business's name. Apply for an EIN from the Internal Revenue Service (IRS) to identify your business for tax purposes.
6. Open a Business Bank Account: Having a dedicated business bank account not only streamlines financial management but also lays the foundation for building credit.
7. Apply for a Business Credit Card: Ideally, you want to use business credit card issuers that SEPARATE you, the owner, from the business.
8. Pay Bills on Time: Make all business-related payments, including loans, invoices, and credit card bills, on time or early to maintain a positive credit history. If necessary set up a budget to ensure your finances don't get out of hand.
9. Monitor Your Credit Report: Regularly check your business credit report to ensure accuracy and identify areas for improvement. Address any errors promptly.
10. Establish Relationships with Financial Institutions: Develop relationships with banks and lenders that offer business credit products. Seek guidance on improving your creditworthiness.
Download the FINANCIAL SUCCESS Toolkit for links to resources.
Establishing business credit is a crucial milestone in ensuring the financial prosperity of your new venture.
To steer your business towards stability and growth, get NOBOSS Workshops.
Workshop-I will guide you through the necessary steps to start any business, as well as how to build your business credit.
Diligently following these steps and dedicating effort to building and sustaining your business credit will yield long-term benefits, unlocking opportunities that may have seemed unimaginable before.
CHECK OUT THIS CONTENT TOO:
Access the FINANCIAL SUCCESS Toolkit to kickstart your journey. This comprehensive resource is brimming with ideas, tools, and resources to initiate and navigate money, credit, and wealth!
Since we’re on the subject, check out our content BUILDING WEALTH.
It takes money, to make money. So, check out our content BUILDING MULTIPLE INCOME STREAMS while you’re at it!
