Building business credit is one of the most important things that a startup company can do. The higher your business’s credit score the better. A higher business credit score will allow your business to acquire higher loans at lower interest rates and with better terms all around. This is a powerful way of developing your business and acquiring large amounts of capital for the process of building your business. Entrepreneurship plays a vital role in the economy of the US which is why it is so important to understand how your startup can develop its credit to acquire the capital it needs to grow.
Forming an LLC
Incorporating your business into a Limited Liability Company (LLC) is one of the first things any startup should consider. It has a multitude of benefits for your company including protecting your assets from the company’s and vice versa. Banks and other financial institutions prefer lending to legal business entities as this provides them with more security and reliability for recouping their money. Having an LLC in place makes your business more credible and appealing to lending institutions. Any legal business entity will suffice but an LLC is the best option for a startup as it mitigates personal risk.
Obtain an Employment Identification Number (EIN)
This is a requirement of the IRS for most businesses. An EIN functions in a similar way to a business in which a social security number functions to an individual. In the same way that a personal credit score is attached to your social security number, a business’s credit score is attached to an EIN. An EIN is also required to open a business bank account. This is another important step that startups should take when establishing themselves as it both improves credibility and creates convenience. It is also essential that an LLC’s assets are not contained in a personal bank account as this would void the entire purpose of an LLC. A business bank account creates credibility for your business as your potential lenders can see your spending habits. This will allow them to trust your business, assuming you have been spending wisely. It will also indicate your business’s ability to pay back any loan which your business applies for.
Steps for Business Credibility
Creating credibility for your business is extremely important as banks and other lenders will be far more likely to lend to a credible business. Some easy ways of establishing this credibility include having a professional business website. This shows potential lenders that your company exists and that it values its online presence. Another step that increases the credibility of your business and establishes an online presence is creating social media accounts for your business. LinkedIn is the best social media site to create an account for your business as this is a professional social network. It is also the social media site that will create the most credibility for your business in the eyes of lenders. Additionally, LinkedIn allows your business to network more effectively and to make valuable business connections.
Business Credit Cards
Obtaining a business credit card is an excellent way to develop your business’s credit score. They are relatively easy to acquire and paying them back early will be a surefire way of dramatically increasing your credit score. Your business’s revenue and the duration of time your business has been operational will determine how much credit you will be extended. If you do not use more than 50% of your credit limit each month you will develop your credit score more quickly and efficiently. A similarly effective strategy to building business credit is to apply for in-store credit cards. These should be at stores which your business frequents. This will give you time to pay back your creditors and it will allow you to develop credit on your business in a rapid manner. For more information on how to build business credit fast click on the link to learn from The Really Useful Information Company (TRUiC).
There are many ways that a startup business can build credit and the best way to begin this process is by incorporating your business into an LLC. Other steps which will quickly and effectively boost your business credit score include increasing the credibility of your business by establishing an online presence and acquiring lines of credit through a business credit card and in-store credit cards.