How to build small business credit: a checklist.

Nikki Winston

Do you own a small business and need to build your credit? You're not alone. Many businesses start with no credit history, and with the high cost of loans and difficulty in getting approved for new lines of credit, it can be difficult to get started.

Here are steps you can take to establish a strong credit profile for your small business.

1. Create a separate business entity.

The first step to building your small business credit is to create a business entity that is separate from you. You can form a limited liability company (LLC), partnership, or corporation. Establishing it as its own company can provide personal liability coverage for owners in case anything goes wrong, such as a lawsuit against the business. For example, if you form an LLC and the business is sued, the business assets would be included in the lawsuit but your personal assets like your home, car, or retirement savings would not.

2. Obtain an employer identification number (EIN).

An Employer Identification Number or EIN is a unique 9-digit number linked to your business by the IRS. It's like a social security number for your business. When you open a bank account or apply for business credit, lenders will likely ask for your EIN. Business owners can obtain an EIN number by following the instructions on the IRS website. Once you complete the application, your EIN number is available immediately for use.

3. Open a business bank account.

It is highly recommended that you open a separate bank account for your small business. This is so that you can track your business spend and ensure you don't mix business and personal transactions. One of the requirements of limited liability company law is to not mix your business and personal transactions. For example, you should not pay for business items out of your personal checking account or vice versa. This implies that your LLC isn’t truly a separate entity. If you are commingling funds and you get sued, you could lose the added asset protection that an LLC provides, and your personal assets could be at risk of loss in a lawsuit.

4. Establish business tradelines that build credit.

The next step is to establish at least one line of credit. New businesses can start to build credit by opening tradelines (also called “Net 30” accounts) with vendors. These business credit lines allow you to purchase items now and pay later, usually in 30 days. Office supplies, electronics, and marketing materials are common tradelines business owners can establish to build a positive payment history.

Check with your vendors about the credit agencies that they report payment history to. While it’s great to have business tradelines, if your tradeline activity isn’t reporting to business credit bureaus, it won’t help build your business credit.

5. Apply for a business credit card.

A business credit card is a great way to manage your cash flow. If you need to purchase things for your business and the vendor doesn’t offer a tradeline, you can use your business credit card. You can also use it to cover purchases until you generate enough cash. There are many credit cards that offer rewards, cashback, and incentives for small business owners. When you open a business bank account, your financial institution may also offer credit cards. It’s important to note that business credit cards must be used wisely and paid on time. Late payments and fees can add up if you’re not managing your spending and negatively impact your business credit – and your personal credit if you had to personally guarantee the account. Business credit cards are not intended for personal use, but as a way to establish a revolving line of credit suitable for a growing business. You can start to build your business credit by forming an entity, getting an EIN number, opening a bank account for the new company, and establishing trade and credit lines with creditors. Once you’ve established credit history, your business may qualify for larger loans that can be used to expand or improve the business. This can include capital for advertising, inventory, purchasing equipment, and more.

Furthermore, small businesses owners should regularly monitor their business credit history and report any inaccuracies to the credit bureaus. Proper management is key when it comes to maintaining good business credit. Plus, knowing what options are available could help you get approved faster with fewer hurdles along the way.

Building credit as a new entrepreneur doesn’t need to be complicated; just follow these simple steps and stay on top of your game. Want even more details on establishing credit for your business? Download Magenta Edge’s e-book, A Step By Step Guide on Establishing Business Credit, for more helpful tips.


About the author.

Nikki Winston is a working mom, CPA, and host of The WERKin’ Mommas podcast where she shares business tips, career advice, and the frolics & frustrations of being a Momma. Connect with her on social media @NikkWinstonCPA

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