All You Need to Know About Business Credit

If you want to have your own business, you need to establish your business credit so that whenever you are ready for financing, you will have a higher chance of getting approved and getting greater terms on it. Although, this might take some time and planning. So, the sooner you start, the sooner you can establish your business credit.

What is a Business Credit?

Business credit is the business’ ability to get approved when applying for loans to finance the business.

Your business credit will be used by creditors, lenders, insurance companies, and suppliers in deciding whether to approve your application or any business deals.

So How Do You Build Your Business Credit?

Here are some tips on how to build your business credit.

  1. Having an Employer Identification Number
  2. Basically, your Employer Identification Number (EIN) is like your Social Security Number (SSN) but it is for your business. This is important when you want to change your business entity to a corporation.

    Just a reminder, never interchange your EIN and SSN because this will impact one score to another.

  1. Separating Your Business and Personal Expenses
  2. One of the main reasons why you need to do this is because it will matter to the IRS. If you do not keep the expenses of these two separated, you can be subject for audit.

    Using this strategy will also help you to keep track of expenses and it will be a lot easier as well to manage your taxes.

  1. Opening Accounts for Your Business
  2. Just like your personal credit, opening accounts for your business is one way to increase your business credit and establish it. Keep in mind though that having too many accounts is not good also. One or two business accounts will do.

    Additionally, make sure to pay these accounts on time. Setting up auto payments is one way to go to never miss any payments. Make sure also to never utilize everything or if you do so, pay it down and have credit utilization of 30% or less.

  1. Getting Your Business Incorporated
  2. Having your business incorporated or becoming an LLC, this will legally separate your business and personal assets and profile. Being able to have this will prevent your personal assets from being at risk whenever worst comes to worst and your business is being sued.

    Here at The Oasis Firm, we can help you with the processing to start up your business.

  1. Excise Taxes
  2. These taxes are usually paid you make purchases on certain goods like gasoline, alcohol, tobacco, and airline tickets. It is usually included already in the price of the goods.

The Importance of Establishing Your Business Credit

If you have established your business credit, this will help you secure better interest rates on loans and greater terms with suppliers. This will also help in in the long run in managing your business. On the other hand, having bad business credit will most likely give you lesser chances of getting approved for loans and having good business terms with suppliers.

One big issue with financing is that more often than not, you will need to sign a personal guarantee. Personal guarantee is a legal promise you make as a business owner to take full responsibility of the business debt when the situation comes wherein your business is not able to pay it anymore,

Establishing your business credit can mitigate the need to sign a personal guarantee for business. This will also draw a clear line between your personal and business finances.

Having an understanding now on business credit will give you an idea on the steps you need to take to start up your business.

Here at The Oasis Firm, we can help you reach your dream of owning a business one day!

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Don’t Let Your Credit Hold Back Your Financial Dreams.