Companies do not have glimmering and shiny credit scores to begin with. As a matter of fact, establishing a good corporate credit takes a long period which could go on for months and even years trying to prove the financial stability and credit worthiness of the corporation. However, there are methods to speed up creation of corporate credit. For young companies many lenders will look at the personal credit of the owner. But building credit for your company so it stands alone, and loans can be issued without your personal credit score is a great accomplishment.
We highly recommend to apply for credit lines rigth away, even when the corporation doesn’t need them. Even when the company is new or under less than favorable conditions, there are things you can do to advance corporate credit.
What is Corporate Credit?
Corporate Credit, or also called as Business Credit, is credit assigned to a business or corporation based on the EIN of the company and not the SS# of the owner. Business credit scores range from 0 to 100. Major business credit reporting agencies Dun & Bradstreet, Experian, and Equifax produce business credit scores and reports. FICO scores for small businesses are known as “FICO SBSS.” If you try to compare business credit to personal credit, you’re likely to get frustrated. This rating is utilized by potential banks, business partners, creditors, clients, and vendors to determine the reliability and credibility of the company and whether it is a good decision to extend credit to your business.
Standardization: Consumer credit bureaus generally use FICO’s algorithms to calculate a credit score. Business credit score algorithms don’t follow an industry standard and vary from bureau to bureau.
Data: Generally, business credit reports and scores include just the accounts you have under your company’s name, not your personal accounts. However, many small-business lenders and credit card issuers still consider your personal credit when extending terms to you.
Establishing and maintaining a good corporate credit is vital to the health and permanency of your business. you never know when a good deal comes by and you need a loan to harness an opportunity. Plus, is a major impact on how your company is seen in the business world.
Ways to Establish Business Credit
Even in the early stages of your business, you must focus on building a good business credit. Although it usually takes time in order to build your corporate credit, you will come to understand it more and realize how different actions can affect it. Hence, without further ado, here are some of the tried-and-tested methods that can surely help you build a credible corporate credit.
- Register your corporate entity
It is important for you to know that your corporate credit is autonomous from your personal credit history. Thus, the first move you should make to start building corporate credit is to keep your personal finances separate from your business finances. A good way to do it is by registering your business entity.
Independent business entities such as sole proprietorship or general partnership are the easiest to do, especially in dealing with paperwork and starting up. But you really want to consider an LLC or corporation depending on your business situation.
- C- corporation
- S-corporation
- Limited Liability Company
- Limited Liability Partnership
If you are not sure how to select the right entity type for the business, you can seek consultation from a trusted business attorney or accountant.
- Get an EIN
Employer Identification Number. IRS uses EIN to monitor businesses for tax. Just like how your Social Security Number acts as your personal identification number for tax, the EIN is the numbers that identifies your business. Once you are incorporated, you can get an EIN online almost instantly. your corporate credit will be associated with this number.
- Open a Bank Account for the business
Opening a separate bank account for your business draws a line between personal and business expenses. To maintain corporate legal liability protection, also called corporate veil, you must never commingle personal and business accounts. Only charge business expenses on a business credit card or debit card. Never purchase anything personal through your business.On the whole, opening a bank account for your business is not only necessary but plays a role in increasing the business credit score.
- Assign a phone number and address dedicated to the business
Although this next tip seems to be odd, getting a phone number and address for the business will help strengthen the separation of your business from your personal affairs. This may seem like a small issue, but is yet another step to establishing business credit and allow the business to be registered in business directories.
- Get a Credit Card or Line of Credit for the business
Many small and start-up businesses use credit lines, credit cards and loans to finance the growth and operation of the business. Not only will this provide you with the finance to keep the business running smoothly, but it will also be used to help establish your corporate credit. Credit bureaus want to see credit usage and payment history. A good credit score is affected but not having any derogatory items, and also by having a stable payment history.
Working with a business line of credit is more or less the same as how the credit card works, just without the physical card.
Credit Star Funding can help you with this entire process and then help you obtain loans and lines of credit your business needs. We are connected to thousands of lenders and banks with more lenient risk factors that will allow small or start-up businesses to get funded. The company also has a patented application system that can send applications simultaneously to a number of banks without compromising credit score. This allows to sift through lenders and find the best rates and terms. without others knowing it, keeping the corporate credit protected and safe.
- Keep the Business Information Accurate and Current
In order for business credit bureaus to see how your business is doing, you have to maintain accurate records and information. Because your suppliers or lender could pull your corporate credit from business credit bureaus, it is crucial to keep an eye and check the reports regularly. The business credit bureaus will let you update the basic information about the business and upload related financial documents. The more complete, accurate, and up-to-date the profile is, the better corporate credit will be given to your business.
Also, it is important to check credit reports not only see view your current corporate credit but also to be certain that there is no glitch or error that may affect your corporate credit score. Even the smallest mistake could give a huge impact on your corporate credit.
- Do business with trusted companies who gives factual report to credit bureaus
Doing business with creditors who have direct contact with the business credit bureaus will ultimately work in your favor, especially when they need to obtain credit arises. It is important to establish healthy and professional working relationships with these companies as they will pull you to good corporate credit.
- Practice Financial Responsibility
Paying bills ahead or on time is a sign that you are worthy of a good corporate credit score. Also, how you handle the cash flow will only boost the creditworthiness of your business. On the other hand, making late payments will give a negative impact on your credit rating. Thus, it is important to practice financial responsibility at all times.
Building a trustworthy corporate credit could take months to years. Thus, it is important to start the process in the early phase of the business even when you don’t need it so that when the time comes, you have already a well-established corporate credit. Credit Star Funding is a loan referral agency and at the same time a financial education company that helps people and businesses to be financially savvy. call us today for any questions you may have: 800-627-0895
