Businesses, just like individuals, need to build good credit to function successfully. A healthy credit score is crucial as it enables a business to open a credit card or a merchant account, negotiate flexible payment terms with suppliers, purchase or lease vehicles, rent commercial spaces, and reduce insurance costs. However, it can be challenging for startups to establish good credit.
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Here are some key steps to building great business credit for your new venture:
1. INCORPORATE YOUR BUSINESS:
Turn your business into a legal corporation, making it a standalone entity to separate your personal finances from your business’ finances. This separation protects your personal assets in case your company faces financial difficulties or lawsuits. Once your business is incorporated, you’ll also receive a tax ID number.
2. FIND A SUITABLE LOCAL BANK:
Local banks are often more willing to support small businesses compared to larger ones. Hence, it would be beneficial to research local banks that can provide you with a business credit card or even a business loan to finance your startup.
3. TAKE SMALL STEPS:
Start by securing a low-limit business credit card or applying for a small business loan. This demonstrates you’re building your business credit systematically. Keep your debts manageable to maintain control over your finances.
4. ALWAYS PAY BILLS ON TIME:
Prompt payment of all bills, regardless of their nature or terms, will help build your credit score. Whether it’s a business credit card bill, a bank loan, supplier payments or overhead costs, staying debt-free is key to creating robust credit.
5. MONITOR YOUR CREDIT SCORE:
Keep an eye on your credit score; ideally, check it every quarter. This helps you stay informed about changes to your score and take preventive measures if it dips. Regular monitoring of your credit score and financial records ensures the accuracy of your business’s financial data.
By following these steps, you’ll be on the right path to establishing strong business credit.
