Organizing a Business to Establish Business Credit

Building a secure foundation is an essential component for a new business that is seeking to establish a business credit profile, credit and trade lines.

Business credit, much like personal credit, takes time, patience and diligence to build. Although timely payments are crucial to maintaining an excellent credit score, the first steps to creating new small business credit are much more essential and can be done before opening day.

Organizing a Business as a Separate Entity

Before a business can apply for business credit, it must be a separate entity onto itself. Business owners must complete all the processes of establishing a business as a sole and independent entity. Properly structuring their business will allow them the foundation necessary to apply for business credit and build a strong business profile. Having excellent business credit will allow business owners to obtain financing for their business without providing a personal guarantee.

The first steps in structuring a business to stand on its own are:

  • Incorporate to establish the company as it’s own entity.
  • Apply and obtain an Employer’s identification number or EIN by filing an SS4 with the Internal Revenue Service.
  • Determine a physical location. The business needs to have a physical location that is not the owner’s home address. Mailing centres that offer post office boxes typically work well for this purpose as the box number can be listed as the ‘suite’ number. Another option is a virtual office. These service locations often offer license hanging services, the business name on a wall plaque at the area, mail forwarding services and conference room for around a hundred dollars a month.

Establish the Business as a “Real Company”

Creditors will be looking for a new business to meet specific criteria. Companies that have a public presence and are easily found will far outweigh the mom and pop business that is operating out of the garage. Business owners will want to make sure to:

  • Establish phone service for the business. Creditors who issue a credit to new companies will check both a utility bill and the 411 directories before considering an extension of credit. Ensure the telephone company uses the company’s mailing address for billing purposes and that the new business phone number is listed in the 411 directories. It can be done one of three ways.
  1. Local telephone companies often offer remote call forwarding numbers. It is a telephone number that the phone company manages and is forwarded to another phone number.
  2. Obtaining an 800 number and having it forwarded is another option.
  3. Get a dedicated business telephone line.
  • Open a company bank account at a local credit union or community bank. Smaller community banks are more willing than larger corporate banks to work with new businesses after they have established trade references. Keeping good banking relationships will only benefit your company in the future.
  • Obtain the appropriate business licenses for the operation of the business entity. Be sure to check with state and local ordinances for compliance.

Once these steps have been accomplished, a new business is ready to begin building its credit profile. Like personal credit, business credit building takes time. Savvy business owners educate themselves on what lenders, creditors and vendors in their industry will be looking for before extending credit.


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