How To Establish Credit For Your Small Business
by Abdul Aziz Mondal Finance 28 November 2022
Are you an entrepreneur who is trying to establish credit for a startup?
It’s one thing to build up personal scores but quite another to do the same for a commercial entity, particularly a small one that has just come into existence. Luckily, there are some tried-and-true techniques for achieving this worthwhile goal.
Getting a company to show up on the radar of the credit reporting bureaus can propel a startup into the second phase of its growth cycle and generate significant revenue. However, the first step is to put your personal finances in order by any means necessary.
For many owners, that means refinancing their old school loans in order to free up more monthly cash. There are other tactics, which are detailed below.
Top 5 Ways To Establish Credit For Your Small Business
1. Clean Up Your Personal Finances First
There are dozens of ways to tidy up your personal financial picture. Focus on cutting out any unnecessary spending in order to free up capital to use in the new company.
Most lenders will review the personal credit scores of business owners, many of whom serve as co-signers on company credit cards. That’s one reason it’s so important to do whatever you can to decrease expenses and increase income.
An appropriate tactic is to refinance any outstanding student loan debt. A refi gives you a chance to combine several obligations into a single, brand-new loan and get lower monthly payments.
2. Open Bank Accounts in the Company’s Name
Part of what it takes to start a small business is foresight. Fund the savings account with as much money as possible. Then, get a commercial checking account with official logos and company address for later use.
Don’t use your home address on any of the checks or application materials. Instead, rent a postal box if you work out of your home, which many first-time entrepreneurs and startup owners do.
3. Negotiate with Vendors
Ask two or more of your regular vendors to offer you a very small line of credit and report the arrangement to the major bureaus.
Most will comply because there’s something in it for them: they get a customer, you, who is highly motivated to pay bills on time or earlier and in full. Special vendor arrangements can boost your business’s scores within about six months in most cases.
4. Apply for a Secured Commercial Card
The majority of financial institutions offer secured commercial credit cards. Expect to put about $500 or more into a savings-like account in order to receive a secured piece of plastic. Then, remember to use it for small business-related items at least once per month. The aim is to establish a history of on-time payment and regular usage. Only apply for cards whose issuers report to all three bureaus.
5. Establish a Commercial Identity
This is not about company branding efforts. That can come later. Establishing a business identity is important and will help you create a digital footprint for your organization. It takes time, but the major search engines will find you after a few months.
All these efforts make it easier for your business’s name to begin appearing on the radar of the credit reporting agencies, which is the primary goal. If you work from home, be sure to use the postal box address for all business-related correspondence.
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