Building Credit for your Business

??????????????You can’t spell “credibility” without “credit.” Building credit as a business signifies that your company can manage its financial resources effectively and can capitalize successfully on opportunities for growth. As you typically are not notified when your business credit is reviewed, you may not be aware of how your credit history has affected your business over time, so you may not know of all the opportunities your business could be taking advantage of with the asset of an improved business credit score. Anyone can check your business credit score with the help of the internet, so suppliers, companies and especially investors may use this information to scope out your company’s financial credibility before deciding (or deciding not) to engage in business with you.?A good credit report could open your company up to securing better working relationships and investment opportunities. Having good business credit can assist you in qualifying for?business loans or financing and allow you to finance at preferable conditions such as lowered interest rates. Your business credit could also affect your company’s insurance premiums and qualification for contracts with other businesses.

Building good credit as a Limited Liability Company or LLC, especially as a new business, can be daunting at first, but it is certainly not impossible with effective organization and planning. Read on to find out how our advice for building credit as an LLC, and check out this previous blog post from us on what businesses could benefit from an LLC structure: https://www.theorlandolawgroup.com/blog/all/businesses-that-benefit-from-the-llc-structure/. Even if your company is not an LLC, all types of business structures benefit from a good credit score for the same reasons mentioned above. Corporations, partnerships, and even sole proprietorships are evaluated based on their credit score. Note, however, that as a sole proprietor or as a partner in a general partnership, the business is not considered legally separate from the owner(s) and therefore one’s personal credit cannot be separated from one’s business. In these situations, you’ll want to carefully manage your personal credit, as it can inevitably affect your business and the opportunities it does or does not receive as a result.

??????????????First, let’s look at how business credit works exactly. Business credit is based on an amalgamation of various factors including, but not limited to company details like the number of employees a business has, historical data of the business and financial details like past payment history, account information, debt/debt usage, industry risk and more. Business credit is typically expressed in a business credit score. Note that business credit scores use a different number range than a personal credit score. Business credit scores are ranked on a scale of 0 to 100, while business scores using the FICO Small Business Scoring Service range from 0 to 300. Similarly to a personal credit score, the factor which will impact your credit score the most is your business’ payment history-whether you pay your bills or debts on-time. And, like personal credit, a good business credit score is built over time. Business credit is tied to your company’s Employer Identification Number, so your personal information stays secure as you build credit.

??????????????Before you learn how to build your business credit score, how can you check your current credit score? You can check your score using an online program, although in most cases you will have to pay to access your credit score. Several online programs offer packages to allow you to check your business credit report periodically throughout the year for a reduced fee. Some programs will also notify you when your business profile is being accessed. Commonly used credit reporting agencies include Experian, Dun & Bradstreet, and Equifax. Note that each program will likely compute a slightly different business credit score, and each will consider their own unique factors when determining your score. Certain banks such as Bank of America partner with these programs to offer their clients free access to their credit score reports, so it may be wise to check in with your bank first to see if they offer such a program free of cost.

??????????????As we’ve discussed, building business credit takes time, energy, and dedication, but there are some general tips we can give you to help guide your credit building efforts. Read on for five simple yet effective ways to improve your business credit score.

1)????Establish a solid foundation for your business.

Building a solid foundation and reputation will help you in every single aspect of bettering your business, including your business credit score. If your business is new, take some time to make your business appear professional to not only clients, but also potential investors, fellow companies and vendors, who will be able to access this information through your credit score reports.

This could include:

·???????Building an appealing and functional website

·???????Obtaining a business phone number, email address, and physical address (a home address works if you’re just starting out)

·???????Properly registering and listing your business (contact our office at 407-512-4394 to learn more about how to register as an LLC)

·???????Developing a professional social media presence, and

·???????Put your business’ name out there by getting involved with your target audience and/or the local community.

2)????Obtain an EIN number from the Internal Revenue Service (IRS) and open a business-specific bank account.

An EIN number is to a business what a Social Security number is to a person. You’ll need to obtain one from the IRS (which is free to apply for) to file for federal taxes and to open a bank account in your business’ name. Other companies, vendors and investors will use your EIN number to identify your business’ payment activity used in computing your business credit score. You’ll also need to open a business bank account in your business’ legal name for credit reporting purposes.

3)????Apply for a business credit card.

If you qualify for a business credit card, it can go a long way towards improving your business credit profile. You’ll want to make sure that your card reports activity to all three major credit reporting bureaus we listed above (you can check on this with your bank prior to applying). Use your card on a regular basis, ensure that your card(s) are paid off either early or on time (don’t be late!), and be careful not to overextend your credit, which could harm your business credit score.

4)????Choose vendors or sellers that report payments to major credit reporting agencies.

By carefully choosing which vendors or sellers you open accounts with, you can ensure that your payments go directly towards building business credit and financial credibility. Some vendors automatically do this, but it’s best to ask first and not assume that vendors are reporting your payments. If you are making payments early or on-time and you have a good working relationship with your vendors or sellers, it’s a reasonable request to ask vendors to pay it forward by reporting your payments.

5)????Pay early or on time (not late!).

This may be an obvious point, but considering that payment history is the largest single factor that can make or break your business credit score, it’s a point that must be made. Pay your debts early if possible, as paying early can get you the highest score, but most of all-do not be late in making payments! Even just a few days can dramatically affect your business credit score and set back your progress significantly.

A good business credit score can lead to success, while a poor business credit score can cause damage that can be hard to recover from. While it’s not impossible to repair a poor credit score, starting from a stable peak is far easier than falling down and climbing back up the mountain. By using these tips as a guideline and managing your credit score carefully, you can set your business’ future in the direction of financial and personal success. To learn more about starting a business, choosing the right business structure, building credit, and more, please call our office at 407-512-4394 to set up a consultation.