There comes a time in the life of every business when it needs to borrow money to expand, buy new equipment or just stay competitive in the marketplace. At the same time, the owners of the business don't want to put up their own money for business expenses, so it's time to establish a business line of credit.
Much like a personal line of credit, having corporate credit allows you to get credit cards or loans. This will make it possible for you to grow your business the way you need to without putting your own assets and good credit at risk.
One of the most important things about establishing business credit is that you need to have good personal credit first. Just because your personal money isn't involved in the decision to give you business credit doesn't mean that having bad personal credit won't keep you from getting a business loan.
If you already have decent personal credit, you need to set up your business so that it is, in fact, a real business. That means if you need a license or a permit to run your business, you should have that paperwork. If you're a corporation or an LLC, make sure your filings are up to date with the state.
You need to have a physical address, not just a P.O. Box, and a business phone line. Even if you're running your business out of your home, go ahead and get a phone line in the business name. It's a small step that helps build the foundation to establishing the business as a separate entity worthy of its own credit.
To start building your business credit, it's important to deal with companies that will give you business credit without using your personal credit information and that will then report to the business credit reporting services.
There are probably half a million companies that extend business credit, but only about 10,000 that actually report that information to the credit bureaus. You need to find those companies that do report the information so you can start building your corporate credit.
There are a few key things not to do in your quest for business credit. First, don't try to buy credit. There are companies out there that try to sell and trade references for money, but it's a rip off that will get your business put in the "high risk" category in no time.
Second, don't worry about trying to establish a so-called "shelf corporation" or "aged corporation" to help you build business credit. It's just not necessary, and even new businesses can build credit.
Finally, don't try to make good business credit a substitute for good personal credit. While you're working to build your business credit, you should work on your personal credit as well and you'll be that much better off.
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Trent Lee is the cofounder of Corporate Credit Concepts, a company that specializes in helping businesses get the money they need without putting personal assets at risk. Learn the nine costliest mistakes entrepreneurs make when trying to secure business credit in a free report available at http://www.freecorporatecredittips.com.
