Limited liability companies (LLCs) are one of the most popular business structures for online entrepreneurs who want to shield their personal assets from being up for grabs in the event that a new business venture goes south. There are many advantages to choosing an LLC over a sole proprietorship but, unlike the latter, LLC businesses will have to start from scratch with credit scores.
Even if your business is not in dire need of credit at the moment, establishing business credit early on is an excellent strategy for growth down the road. Unsure of how you can actually start building that business credit? Here are some steps to take:
1.Did you get your federal tax identification number? Also referred to as an EIN, you’ll need this before you can open a business bank account or file federal taxes. EINs are also important when making financial transactions between two companies. Sometimes, payment cannot even be rendered to another company without first ascertaining its EIN.
2.Open a bank account for your business (and use it). Just because your business does not have a ton of expenses yet does not mean that you should be using your personal account for business transactions. Establish an account in the business’s name, and then make sure all financial transactions take place through that account.
3.Don’t forget your personal credit rating. You might be a savvy business owner, but banks will still want to take a good look at your personal credit score before making any decisions on a business loan. Keep a close eye on your personal finances, and you will definitely be better off for it.
4.Apply for credit before you need it, but use it anyway. Many people consider credit to be something that should not be used until necessary. This is a terrible assumption, as there is no time to build and maintain good credit when a situation arises where your business actually needs it. Business credit cards are a good starter for small businesses, just make sure you are careful to establish a favorable payment history. Ultimately, your business should even qualify for an increased credit limit.
Even the biggest and most successful companies utilize credit as a strategy for continuing to build and grow business. With a favorable business credit rating, a world of opportunity with products and vendors can open up, making your business a thriving entity.
