What Should Entrepreneurs Know About Business Credit?

Once your small business is up and running, one of the next logical steps forward is expansion. Finding the financing can be tricky. In many cases, an entrepreneur has already tapped into all the usual startup funding options including loans, funds from family or friends, and personal credit cards. Fortunately, there’s another option: business credit.

What should entrepreneurs know about it before exploring this financing resource?

What is Business Credit?

Business credit is similar to personal credit. It allows a company to get financing under the business entity’s name. This credit is based on an assessment of the startup and its finances by established credit bureaus.

Why Should I Have It?

If business credit is so similar to personal credit, why should entrepreneurs have it?

Using your personal credit to take out numerous loans harms your personal credit. However, taking out numerous loans with your business credit harms neither your personal nor your business credit. This is because business credit reports consider the financing required for a startup.

Running a credit inquiry detracts a little from any credit and even a few inquiries can harm your personal credit. When using it, reports are only run on your business credit, and it can withstand more inquiries before it starts to decrease. Finally, it is better for business expenses. It allows you to keep your personal finances private and to keep your personal credit line free in case you need it.

How Do You Establish Business Credit?

The first big step in building your credit is creating your entity. Forming an LLC or incorporating as a corporation are typically the best entity choices. These entities remove some of the personal liability from their owner.

Next, you will need to obtain a federal tax ID number. This is an employer identification number (EIN). This can easily be done through most online filing services, like MyCorporation.

Third, register your company with a business credit bureau. The big four bureaus are Dunn and Bradstreet, Experian Business, Business Credit USA, and Equifax Business. These bureaus have different requirements regarding what you need to register and maintain a positive credit approval. Make sure you pay attention to the details. Failing to comply with these rules can harm your credit.

After all this is done, business credit is built and improved by working with companies which will accept your business credit instead of your personal credit.

What Can You Do with It?

In many cases, it allows you to receive higher amounts of financing than you would ordinarily be able to. Additionally, being listed with a bureau gives your company a better reputation and encourages lenders to loan you money. Vendors are able to contact the bureau you are listed with and confirm you are a reliable business which values making payments on time, thus encouraging vendors to work with you.

Establishing it also allows you to monitor your credit as your startup grows. This paves the way for a successful and prosperous future. Essentially, it makes you a more desirable candidate for financing. This is exactly what you want to be when you are trying to expand your business.

Create an entity formation to build your credit. Contact MyCorporation at mycorporation.com or give us a call at 877-692-6772.

Deborah Sweeney

Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With extensive experience in the field of corporate and intellectual property law, Deborah provides insightful commentary on the benefits of incorporation and trademark registration. Education: Deborah received her Juris Doctor and Master of Business Administration degrees from Pepperdine University, and has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in corporate and intellectual property law. Experience: After becoming a partner at LA-based law firm, Michel & Robinson, she became an in-house attorney for MyCorporation, formerly a division in Intuit. She took the company private in 2009 and after 10 years of entrepreneurship sold the company to Deluxe Corporation. Deborah is also well-recognized for her written work online as a contributing writer with some of the top business and entrepreneurial blogging sites including Forbes, Business Insider, SCORE, and Fox Business, among others. Fun facts/Other pursuits: Originally from Southern California, Deborah enjoys spending time with her husband and two sons, Benjamin and Christopher, and practicing Pilates. Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Deborah, and MyCorporation, have previously been honored by the San Fernando Valley Business Journal’s List of the Valley’s Largest Women-Owned Businesses in 2012. MyCorporation received the Stevie Award for Best Women-Owned Business in 2011.