Businesses, like individuals, need to build good credit to operate smoothly. A solid credit score is essential as it allows a business to open a credit card or merchant account, negotiate better payment terms with suppliers, buy or lease vehicles, rent commercial properties, and lower insurance costs. Establishing good credit can be tough for startups, though.
Here’s how to build strong business credit for your new startup:
1. **Incorporate Your Business:**
Make your business a legal corporation. This separates your personal finances from your business finances, protecting your personal assets if your company runs into financial trouble or legal issues. When your business is incorporated, you’ll also get a tax ID number.
2. **Find a Suitable Local Bank:**
Local banks often support small businesses more than larger banks do. Research local banks that can offer you a business credit card or a business loan to help get your startup off the ground.
3. **Take Small Steps:**
Start with a low-limit business credit card or a small business loan. This systematic approach helps you build your business credit. Keep your debts manageable to stay on top of your finances.
4. **Always Pay Bills on Time:**
Paying all your bills promptly, no matter what type they are, will help build your credit score. This includes business credit card bills, bank loans, supplier payments, and overhead costs. Staying debt-free is essential for strong credit.
5. **Monitor Your Credit Score:**
Regularly check your credit score, ideally every quarter. This keeps you aware of any changes and lets you take action if your score drops. Monitoring your credit score and financial records regularly ensures the accuracy of your business’s financial data.
By following these steps, you’ll be well on your way to establishing strong business credit.