Understanding and Building Business Credit

     Business credit building is best when you understand it, since it’s essential for any owner who wants to access funding and other financial opportunities. When done correctly business credit is separate from personal credit and is used by lenders and creditors to assess a business’s creditworthiness. With a strong history a it will be able to qualify for loans, credit lines, and even better terms on insurance and other services much easier.

    A business can begin establishing a strong credit history by obtaining a tax ID number, or Employer Identification Number (EIN). This EIN number is a unique number that is obtained from the Internal Revenue Service (IRS) and is used to identify a business for tax purposes. Once the owner gets an EIN, it can be used to register with business credit reporting agencies like Experian and Dun & Bradstreet. These are the agencies that collect and maintain information on businesses, like their payment history, credit usage, and any public records, and use this information to generate a credit report and score.

     Now that that has been done, the next step is that owner should obtain credit in the business’s name. Then they can begin by opening a business credit card, a credit line, apply for a loan, or they can even begin by leasing equipment. Accurate and complete information is important to be given when applying for any financing, this includes information like the EIN, the business address, and the owner’s (or officer’s) contact information. Owners should know and understand that any credit scores given to the business are determined by many factors which include payment history, credit utilization, and length of credit history that the business has.

     When applying for credit it’s also important to know that when an owner applies for financing, the lender might also check the owner’s personal credit score as well. This is a common practice because in many cases, the owner might be personally liable for the business debt (it all depends on how it’s structured). When this happens, even if a business has a good credit score, the lender might see a low personal credit score from the owner and deny credit because the lender might see it as a risk.

     That is why managing credit responsibly is an important step in building a strong credit history. In order to accomplish this, payments have to be made on time, and keeping balances low. Another important tip is to check the credit reports regularly to ensure that the information is accurate in order to catch any potential errors or fraudulent activity early, and be proactive in getting any issue fixed as soon as possible.

     Many don’t think about the helpfulness to establish positive credit history with suppliers and vendors, there are many that will report all payment history with business credit reporting agencies. So don’t forget that by making timely payments and maintaining a good payment history with vendors and suppliers can help boost a business’s credit score.

     In conclusion, the best thing a business owner can do is to understand and build credit, since it’s essential for any owner looking to access funding and other financial opportunities. The owner should register it with credit reporting agencies, obtain credit in the business’s name, and manage credit responsibly. These are all important steps in building a strong credit history and by following these steps, owners can establish and maintain a strong credit score for their business, which can open up opportunities for growth and expansion in the future.