How To Build Business Credit For Your Startup

Getting your first line of credit when you’re just starting your business is essential to establishing a credit history of when you really need it down the line. If you’re starting your first business, you’ve probably never had to deal with business credit before and might not know where to start. Here are a few tips to keep in mind:

What Kind of Credit?

Business credit is different from personal credit. One mistake that many new business owners make is to use personal credit cards for their business expenses. If possible, you should avoid using personal credit with your business. Otherwise, you assume total liability—if your company fails or gets sued, you risk ruining your credit score or losing personal assets to debt collectors.

The best place to start looking for a business credit card is somewhere that you already have personal connections, such as your local bank. If you have an active account in good standing at a bank, that bank is more likely to want to open an account with your business.

In order to apply for a business card, you need your Employer ID Number (EIN). Putting this on your application is what allows banks to distinguish between business and personal credit cards. You can get an EIN from IRS.gov by searching for the application.

Other Options

There are ways to build up business credit without using only credit cards. Business loans, such as those offered by banks or the Small Business Administration, can be used to finance expenses that come with starting a business.

If you get a business loan from a bank, you can expect to secure it with collateral, which may be difficult for some kinds of startups. If you don’t qualify for a normal business loan, Small Business Administration (SBA) loans may be a good option. They are easier to qualify because the guarantor is the government, and they allow you to make lower payments over a longer period of time.

In order to build credit history, which is essential for expanding your access to credit down the line, you need to get registered with Dun & Bradstreet, one of the main business credit bureaus.

Like a personal FICO score, this rating helps lenders determine how creditworthy your business is. If your business isn’t already registered, you can contact D&B and become registered by applying for a free DUNS number after you’ve established your business and have your EIN.

Pitfalls to Avoid

Don’t let your personal credit tank while you’re trying to build business credit. Although the two may be separate, they can still affect each other, especially if you’ve signed a personal guarantee on your business’s loans.

It is also vitally important to pay all taxes that apply to your business. Falling behind on your taxes or failing to file can put your business in trouble with the government, and that can be ruinous for your credit.

Finally, keep good credit habits just like you would with personal credit. Don’t open too many cards in a short period of time, don’t purchase unnecessary items, and don’t use the entire spending limit.

If you can avoid the dangers of building credit for a startup while practicing good habits, you’re well on your way to having a successful business. As your business grows, so will your credit, which will only help you to grow faster.

This article was provided by Debt.org, Helping Entrepreneurs by providing them with information on small business finances.