Your Business Credit File should be your number one priority. Once your business become a legal entity, apply for your EIN and open a business checking account after you receive the EIN from the IRS.
The majority of people who start a small business believe that their businesses lines of credit are determined by the owner’s personal credit file. It may be true that you will have to acquire some credit or a loan to initially fund that business by providing a personal guarantee to the lender. However, this is not always the case. There are things you can do to better your chances of getting funds without putting the burden on your personal credit file.
There are 3 major business credit bureaus much like the traditional consumer bureau’s: Experian, Transunion, and Equifax. The Business credit bureau’s are: Experian Business, Equifax business and Dun & Bradstreet. Dun & Bradstreet being the biggest and, in my opinion, the most important one to establish your business credit file.
2 steps to get your business credit file started
First thing you will want to do is apply for a DUNS number with Duns & Bradstreet. You can do this for free but, they will try to sell you a package that you really don’t need. If you choose to purchase it that is your call. Once you have your DUNS Number you will need to seek out trade accounts or vendors that report to the Business Credit Bureau’s.
Second, you want to set up accounts with the vendors of your choice and make some purchases from them. The are called Trade Accounts. Some may extend you a net 30 payment, meaning, you can pay the balance off 30 days from the date of purchase. Others may require you pay up front for the first-time purchase then offer you the next 30 option.
Business credit isn’t built over night but it can be established fairly quick providing you pay the vendors on time. Do yourself a favor and do not go hog wild with the credit. You do need to make use of the credit lines you open but, you only have to make small purchases to show it is being used.
Trade accounts are your initial line of credit for your business credit file adventure. Trade accounts are not like a revolving credit lines, where you use it, pay it off and you suddenly have your full limit again. Trade account afford you time to pay off the balance. Here is an example: you purchase office supplies in the amount of $200. The vendor allows you to pay for the purchase in 20 or 30 days. This is called a NET 20 or NET 30 account.
Once you get an established repayment record with your vendors, some may opt to give you a NET 60 or Net 90 account, which gives you a lot more time to pay off the merchandise you ordered.
Only order an amount you know that you will be able to pay off easily when it comes time to pay. Minimum orders are generally around 50 bucks.
Then order again and pay the balance on time. Before you know it, you will a great business credit file and will be able to attain loans or a line of credit for your business with absolutely No Personal Guarantee from you.
You EIN is essentially your businesses social security number. All your personal credit information is linked to your Social Security Number. Once your business credit file is established you will never need to use your personal credit for business purposes.
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