How to Establish Business Credit
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Keep your
Personal
credit separate from
your Business credit.
Learn how
to
establish
business credit so
you
can apply
for business
loans and business grants.
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Personal Credit
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When starting your own business the first resource
of funding normally comes from your own pocket.
Rather than funding their business with a business
loan, new business owners get their startup money
from savings, retirement accounts, or a loan from
family members. Some make sure they have a part-time
job so they'll have a regular source of income
during the business startup phase. Other business owners max
out their personal credit cards or use personal
lines of credit, refinance a mortgage or borrow
money from their bank with a personal loan. |
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Did You Know? |
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Using your personal credit to fund a new or
established business is an all-around losing
proposition because it puts you - the business owner at risk of
damaging your personal credit score. Using personal
credit as money for your business, you reduce your
personal credit score with each inquiry made by each
bank for each loan
request. When you charge against your personal
credit, the business debt appears on your personal
credit report and increases your debt-to-income
ratio and lowers your personal credit FICO score. |
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Did You Know? |
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If you use your personal credit for business
expenses and costs, it's attached to your social
security number. Any debt your business
racks up will follow you, even if you're no longer
in business. |
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Steps to Establishing Business Credit
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» Establish a Business
Location and Business Identity
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Decide on what address you'll use for your business
location. Your business address will be used in
public documents, so many home businesses use a
mailbox rental location, as this gives you a street
address to use as a home business location. Make
sure the address you decide to designate as your
business address, is used on everything associated
with your business - business documents,
applications, bank accounts, business cards,
billing address, magazine subscriptions, catalogs, etc. |
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» Decide on Your Business
Legal Structure
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A business accountant or CPA can advise you on the
best legal structure for your particular business,
as your choice in business entity can have
significant tax implications. A business entity will
clearly separate your personal assets, credit and
debt from your personal credit. Most businesses will
establish themselves as a Corporation or a Limited
Liability Company (LLC). |
The most common business structures are:
- C Corporation
- S Corporation
- Limited Liability Company (LLC)
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
- Professional Corporation or PLLC
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online or contact their Customer Care team at 800-981-7183. |
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» Get Your Tax ID Number
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Just as each individual has a social security
number, each business has a Tax ID number or EIN.
The EIN is a nine digit number the IRS uses to
identify your business. You’ll use this number
to open your business bank account and build your
business credit profile. Apply for a business EIN
online through the IRS site, the process is quick
and simple. To establish business credit without a
personal guarantee you
must have an EIN. Business credit is tracked using
your business name, business address and employer
identification number. |
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» Establish a Business Telephone
Number
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Set up a dedicated phone number for your business.
If you use a cell phone (either a phone plan such as
Sprint or Verizon or a prepaid phone) be sure you
enter into an arrangement where you'll always be
able to keep that phone number. You don't want to
have to change your business phone number in a
couple of years ... it should stay with you always.
Be sure the phone billing address is under
your business name with your business address. |
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» Open a Business Bank Account
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Open a business checking account using your exact
legal business name and address. Consider opening a
business bank account with an online bank. Online
banking offers quite a few perks, so be sure to
compare rates and benefits with each. If you find an
online bank you want to go with - check to see if
they have a brick-and-mortar business as well. A
local bank is important in relationship establishing
and getting information that can't be obtained
online. If it's important to you to know there's a
real person you can sit down with if you need to,
then an online-only bank may not be the best choice
for you. After opening a business bank account,
contact the bank customer service department two to
three business days after opening the account. Call
them during traditional business hours to confirm
the account was properly opened and everything is in
order. |
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» Apply For and Obtain Required
Local Licenses and Permits
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Depending on the address of your business, you may
be required to obtain city, county and/or state
business licenses. In addition, certain business
types will also require a permit. You'll want to
check your states' Department of Revenue and
determine if your business type requires a specific
license or permit. |
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» Establish Your Internet Presence
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For any business, it doesn't matter whether you're
selling a product or service, you should have an
initial Internet website. Start small, and expand it
as your business grows. For a service business (such
as a daycare or dog-walking) a one or two page
website is perfectly OK as a start. A service
business website at the minimum, should include this
information: About the Company, Services and Rates,
Contact Info. If you'll be selling a product, then
more thought will need to go into it. The most
important element of your website will be the
ecommerce piece - what method you'll use to accept
credit card payments, and using a dependable
shopping cart program. HostingCT.com is a
woman-owned company offering web hosting,
domain name registration, website design and SEO services. Established for over ten years, they
will give you fair pricing and personal customer
service. You may want to
visit HostingCT.com online or contact them
directly via phone at 888-288-7162, ask for Paula. |
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» Get a Dun & Bradstreet Number
and Establish a Business Credit Profile
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D&B (NYSE: DNB) is the world’s leading source of
commercial information and insight on businesses.
They help small business owners position their
companies as financially stable and creditworthy. A
strong D&B business credit file can help your
business when negotiating payment terms or seeking
sources of financing. Dun & Bradstreet is the
largest tracker of business credit. You'll want to
apply for a D-U-N-S number which is a
nine-digit identification for your business. You can
apply for a D-U-N-S
number online, and in most cases it will be
issued within five business days. Your D-U-N-S
number can definitely be a valuable asset to your
business as it enables customers, suppliers and
lenders to find you and learn about your company.
Keep in mind, that all information you give D&B may
end up in your credit profile. All information
reported to D&B will be public information. You
don't have to reveal 'everything' to D&B, because
any financial information you list with them will be
available to your business competitors to view.
You'll want to have your business entity
established and have your EIN. The D-U-N-S number is
how lenders will determine your business credit
worthiness (most business credit card and loan &
grant companies will ask for your D&B number during
the application process). |
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» Apply for and Establish Business
Credit
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A logical
place to start is with your local or trade vendors such as office
supply stores. If you have a business that orders
supplies of parts from companies on a regular basis,
check with them and ask if they're reporting your
payment history to one of the credit bureaus, and
specifically Dun & Bradstreet. If they don't report
to D&N, ask them if they will. If they won't / don't
report your payment history to D&B, then you should
create a trade reference sheet with at least three
references. Include their name, contact information
and credit limits. Use to augment your official
business credit report. Open a business credit card
in the name of your business, keep your balance low
and pay always before the due date. When you apply
for business credit - use
your EIN and D-U-N-S
numbers only. Don't use your social security number
as you want to build your business credit under your
business EIN number. It's best to apply for new
business credit sparingly, don't apply for several
accounts at one time.
Once you have business accounts, in good
standing, be sure to add them to your Dun &
Bradstreet business credit profile. |
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