3 Steps to Establishing Business Credit
Good credit (both business and consumer) is important for the future of your business. Strong business credit scores on sites like NAV can help business owners secure better interest rates on loans, and secure better trade terms with important suppliers in your industry.
Having good business credit can provide a number of benefits, including:
- Positioning your company for more favorable payment terms with new vendors and suppliers.
- Reducing the number of times you will need to prepay for products or services purchased.
- Allowing you to obtain better interest rates and credit terms from lenders and banks.
Here are 3 steps to help you start your business credit.
1. ESTABLISH YOUR BUSINESS AS A LEGAL ENTITY.
If you haven’t done so already, now is the time to structure your business. Financial institutions do not lend to sole-proprietors, so you have to establish a legal entity. The entity you choose will depend on a number of factors. Consult with a tax attorney or your local Small Business Development Center to discuss which entity is best for your business.
2. OBTAIN AN EMPLOYER IDENTIFICATION NUMBER (EIN)
An EIN is used for tax administration and is required to open a business bank account or apply for financing. Apply for one free at www.irs.gov. Once you have established your EIN, open a business bank account. It is important that you separate your personal and business finances. From a tax planning perspective, you’ll be able to maximize your business deductions and credits. Be sure to consult with your tax adviser for details.
3. APPLY FOR A DUNS NUMBER, ISSUED BY DUN & BRADSTREET.
According to the Dun & Bradstreet website, “The DUNS number is referenced by lenders and potential business partners to help predict reliability and/or financial stability of the company in question.” The DUNS number is also required by many municipalities and the federal government if you want to secure government contracts.
Once you have established and built good business credit, be sure to monitor and protect it, just as you do with your personal credit.