Running a business is going to be a lot easier if you can buy things when necessary. Many business owners don’t have enough cash to go out and make big purchases on a whim. This is why business credit is important to the success of so many businesses. What exactly is business credit, though, and how can you go about establishing it?
Understanding Business Credit
Business credit is very simple to understand. It’s simply a term that refers to your ability as a company to purchase things without having to pay for them right away. You might have a line of credit with a bank or you could have a business credit card. This will allow you to buy things such as vehicles, equipment, and other business essentials.
In order to utilize business credit, you’ll need to maintain a good business credit score. The credit score will dictate how much credit will be available to you. Businesses that have poor credit scores might not be able to use business credit at all. This can easily put a business in a tough spot.
How to Establish Business Credit
Establishing business credit works pretty much the same way as establishing good credit as an individual. First, you’re going to need to ensure that your business is a separate legal entity. You’ll need an Employer Identification Number from the IRS and then you’ll need to open a business bank account. It’ll also be wise to have a business phone number.
You can then go to banks or credit card companies to attempt to get a line of credit or a credit card. Since your business is new, you might need to cosign for a loan or business card as an individual. Making your payments on time and using the line of credit responsibly will help you to maintain a good score. When you have strong business credit, it’ll be far easier to get large loans because you have a reputation for paying things on time and doing what you need to do.
Keep tabs on your business credit score to see how you’re doing. It should improve over time as you keep doing things the right way. If you start missing payments and using the credit line irresponsibly, then the score will decrease.