Setting up a new business is not easy; one of the biggest problems can be establishing a line of credit for the business. Much the same as with personal credit, lenders are often reluctant to take a chance on a business that does not have a decent credit history. If you are just starting out in business this can be difficult to achieve.
Negotiating the path of trying to establish credit for your new business can be really complicated. You may want to take a look at a business credit workshop to get some professional assistance. In the meantime we are going to take you through five steps that are vital if you want to establish business credit.
One of the most important aspects when it comes to business credit is to separate the business from you as an individual. This means that you need to incorporate your company, rather than being a sole proprietor. If you do this then your finances are looked at completely separately from those of the business.
As we mentioned in our introduction, it can be very difficult to establish good business credit if you don’t have a business credit history. It’s a bit like when you first apply for a personal or home loan and you have never had any credit previously. You don’t have any payment history so providing you with credit could be considered a risk. You should rectify this situation as soon as possible and the first step is to acquire a DUNS number so that you can set up your credit profile. This means that every time you do business with someone, that has a credit aspect, they can report against your profile. Obviously, the more positive credit reports you have the more likely you are to be seen as a good risk for future credit. You start small with your business credit lines so you can obtain more substantial credit in the future.
Before any vendors or suppliers can report against your business credit profile you have to do business with them. You should aim to do business with at least five suppliers or vendors. You need to make sure that they report your business with them. There is little point in establishing these lines of credit if your reliability is not being recorded.
It’s important to formalise your business so that it can be found easily. Make sure you have a separate telephone number for your business which is listed in directories. You should also establish a business website.
You need to make sure that you set up a business bank account. Once you have a business account you should make sure that all transactions to do with the business are settled from this account. This includes any payments for a business credit card if you have one.
This is really obvious but it’s still important to mention. If you do not make payments on time then this will reflect badly in your business credit profile. Much the same as with personal credit, this can seriously restrict your access to credit going forward.
Establishing business credit is an important aspect in the success of every business. A lot of the work you have to do is common sense, such as paying bills on time, but it’s worth taking some time out to make sure you have covered all of the tips we have given you.