Building Business Credit

Just as with personal credit, building business, or corporate, credit takes time and effort. But, the benefit of getting loans with corporate terms and rates suitable for your business is well worth it. A corporate loan offers the borrower more money at lower interest rates and with more flexible terms of repayment – without requiring the borrower to submit personal assets as collateral for the loan. (Of course, business assets may be subjects for collateralization, especially when the loan you're seeking is for the assets in question.) Therefore, a business loan could potentially allow you to grow your business in a direction that personal loan financing could not, such as opening another location or buying a new fleet of vehicles.

The process of building good business credit should begin when you initially start your business. Apply for a Federal Tax Identification Number. Depending on your type of business, you might consider setting up your operation as a corporation, S-corporation, or limited-liability company, depending upon the advice of your attorney. Each state's incorporation laws vary, so one form of incorporation may be better for your business than another subject to where you incorporate. And, don't forget to obtain any necessary business licenses from your city, county and/or state, as required.

Eventually, your business will need to have a physical address with at least one landline phone in order to be considered for a corporate loan. However, in the beginning, don't saddle yourself with overhead expenses that you don't absolutely need just yet. If you can run your operation out of your house with a cell phone, go ahead and do so for awhile. But, do take out a few very small business loans that you don't really need and pay them back promptly to establish some business credit. Also, if you do business with vendors on credit, ask them to report how you've handled your credit with them to at least one of the major credit bureaus. Those small business loans and vendor credit will both help to build your business's credit history, so use them to your best advantage.

While you're developing your business's credit, don't neglect your own personal credit – before or after you've incorporated. Incorporating your business will protect your personal assets, but it will not erase your personal bad debts (or the debts of any other owners of the business) from the picture. In other words, when the time comes, potential lenders will almost certainly look at your personal credit history (along with the history of any others that will be principal parties to the transaction) and decide not to make the corporate loan.

From the first day that you start your business, you should consider a plan for building its credit. You may be a sole proprietor – and the company's sole employee – set up in the middle of your garage right now, but what if that new doohickey with the doodlebop you designed really takes off? Corporate borrowing power will allow you to keep up with your product's demand.

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