How to Establish Small Business Credit
Statistics show that about 2/3 of all businesses expect to grow their companies by making use of financing at some point, but only about half this number will be able to secure financing through the company itself. There is a definite advantage to using the company name for financing, because you can almost always secure greater amounts for your company than you would be given as an individual.
Therefore, it makes good business sense to take those steps which will give you the best chance at being approved for a line of credit for your business. Other steps will become important after you’ve been in business awhile, but in the beginning these are the most important steps you can take. Here’s what you need to do in order to make that happen.
Registering your business as a corporation, as opposed to a sole proprietorship or general partnership, will allow you to setup separate business credit, as it retains a legal distinction between a company and its owner. Filing the Articles of Incorporation with your state’s Secretary of State will be the documentation necessary to set up this legal business type.
Apply for a federal taxpayer identification number (EIN)
This is a unique identifier for your business, assuming it’s located in the United States. It is the number you would have to use to identify yourself on all tax forms and other documents to the government, and it would be required by any bank you are doing business with under your company name. The application is an easy process, which you can do directly with the IRS.
Open up a bank account for your business
Open up two bank accounts – a savings account and a checking account – using your EIN from the government. These two accounts will immediately begin establishing a history for your company, which will eventually be consulted by any lender you apply with for a line of credit.