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How To Establish Business Credit For Your Startup

How To Establish Business Credit For Your Startup

How To Establish Business Credit For Your Startup

When you start a new business, it is important for you to build credit for your business entity. Although you will likely base your company’s credit on your own personal financial history in the beginning, you need to move away from that so that your personal credit isn’t conflated with your business down the line (potentially subjecting you to some form of penalty should your business fail, be sued, or suffer other financial hardship). But how can you establish business credit for your startup? Here are a few tips for the entrepreneur eager to give a professional undertaking a life of its own.

The place to start is by making your business a separate entity. If you have a sole proprietorship, the company’s credit is your credit. And as a result, your personal assets could be at risk should creditors come after you. For this reason, you need to incorporate, setting up some kind of corporate structure for your business (LLC, S-corp, etc.). This will make your business a separate legal entity and therefor capable of establishing its own credit.

The only problem is that now your business has no credit to back it up. So getting loans and/or lines of credit will be difficult. And you may need these incoming funds to stay afloat, weather financial hardships, or expand. So your next order of business is to open bank accounts and credit cards under your business name. This can most easily be accomplished by approaching banking institutions that have a reputation for dealing favorably with small businesses. You’ll have to do some research to find the right banks, not to mention the right agents to speak to. But the end result will be the opportunity to begin establishing credit for your business.

In order to get a credit card you may need to put up some money. In the beginning, company funds may be nothing more than your own money. But it doesn’t matter. Whether you have to use collateral to get a secured credit card or you simply take a card with a low limit and a high interest rate, the idea is to use the card and pay it off every month. In fact, it might be better if you begin with a minimal credit limit so that you don’t overspend and get in hot water. The point is to build credit, not overextend your company resources.

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Eventually you will be able to upgrade to a better credit card with more favorable terms, at which point you can get rid of your beginner credit cards. However, there is still a step you need to take to build credit for your business. At some point you’ll want to take out a small business loan. Faithfully repaying a loan is one of the best ways to improve your credit score, both personally and professionally. From there you must make sure to stay up-to-date with payments and check your credit score regularly with a website like Credit Sesame. But once you’ve built good credit for your business, maintaining it should be a relatively easy proposition.

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