8 STEPS TO BUILDING CREDIT WORTHINESS AS A SMALL BUSINESS
In my last blog, Avoiding Credit Karma, I shared my intimate walk with credit woes and how I learned to appreciate and protect your creditworthiness. I want to continue with credit and how as an entrepreneur, your business now has creditworthiness that is very important.
YOUR PERSONAL CREDIT IS NOT THE ONLY FACTOR IN YOUR BUSINESS CREDIT WORTHINESS.
I have been an entrepreneur for over 15 years and during these years I have experienced so many lessons about growing a business. Not all easy, but definitely why I’m a blogger today. My first business was a home-based business. When I was deciding on which type of business entity that would allow me to grow and keep my personal asset separate. I decided to go with a Limited Liability Corporation. There are four common entities of business to choose from: Corporation, General Partnership, Limited Liability Company (LLC) and Sole Proprietorship. I always advised while establishing your business, you want to choose the entity that fits your goals and needs of the business. A great site to check out to help is the Small Business Association guide on choosing a business structure.
I hired an accountant to incorporate my business. I could have done this myself online, but I wanted the advice from the professional who would do my quarterly taxes. The business structure you choose is important because it can influence everything from the daily operations, taxes, and your personal assets being at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.
I wanted to expand my home based business which would require the need to borrow working capital to fund my expansion. I needed MORE MONEY. This was a risk and also a challenge to see if I was ready to move in the direction of obtaining monies for my business from an outside source, and if I had the credit worthiness. If you remember in Credit Karma, your credit worthiness goes towards many determining many factors. If you’ve been in business less than 5 years, your ability to obtain a loan will revert to your personal credit. If your company entity is an LLC, a bank will look at your personal credit worthiness first, and then if you have established credit in the business such as lines of credit or loans. This is why owning a business and having an entity that may protect your personal asset may still require you to have a strong personal credit worthiness.
So, How did I establish business credit worthiness? I took advantage of a program that helps small business owners like me. I went to the Small Business Administration.
WHO IS THE SMALL BUSINESS ADMINISTRATION?
The Small Business Administration (SBA) is an autonomous U.S. government agency established to aid small businesses. One of the largest functions of the SBA is the provision of counseling to aid individuals trying to start and grow their businesses. The SBA sets small business size standards. If you qualify as a small business, you are eligible for perks The SBA offers financial assistance and loan programs to small businesses who meet the SBA loan requirements. It worked for me because I was able to get counseling that led to a line of credit backed by SBA.
Maybe you’re not expanding the business BUT positioning your business to be seen as creditworthy is important to the growth of the business. For many years, I didn’t think or know there was a difference because I went along with caring for my business, and my personal credit, as usual. But, one thing was different, I had an American Express for the business. If you have a business credit card for your company, you probably have business credit scores, too — whether you know it or not.
I would check my personal credit report, but I would only see the AMEX was being reported on two of the credit bureaus. The reason is that business credit reporting is done through Dun & Bradstreet, Experian, and Equifax. Most of us are familiar with Experian and Equifax, but Dun & Bradstreet because it solely for the commercial side.
Dun & Bradstreet measures a company’s risk using a Paydex score, ranging from zero to 100. This number is based on payment data reported either to the bureau or to data-gathering companies that partner with the bureau. It, along with a “commercial credit score” and a “financial stress score,” helps lenders decide whether to extend credit to you and how much. Insurance companies use this score to set your premiums for business insurances. So, it is not about getting into debt, it’s about creating your credit worth as a business.
HERE ARE 8 GREAT WAYS FOR A SMALL BUSINESS TO ESTABLISH BUSINESS CREDIT WORTHINESS
Incorporate your business. I know my Sisters have done this step… This for my newbies! Makes sure you’re Incorporated. With sole proprietorships and general partnerships, the business is legally the same as the owner; therefore, there can be no separation of business credit history from personal. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).
Obtain a federal tax identification number The EIN is basically a social security number for a business. It is required on federal tax filings and is also required to open a business bank account in the name of the corporation or LLC.
Open a business bank account. Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card for many financial transactions, be sure to pay the credit card bill from your business checking account.
Establish a business phone number. Whether you use a cell phone, or you use VoIP, have a separate number for your business and in your business’s legal name.
Open a business credit file. Open a business credit file with all three business reporting agencies: Experian, Equifax and Dun & Bradstreet
Obtain business credit card. Obtain one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.
Establish a line of credit with vendors or suppliers. Work with your vendors and/or suppliers to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.
Pay your bills on time. Perhaps it should go unsaid but be sure to pay your bills on time. Like with your personal credit, late payments will negatively impact your business credit.
Seem pretty easy to start and it’s a great way to get your business credit worthiness in the higher numbers. Even if you dont see much need for addressing your business credit, a business owner should have plan that exceeds their goals. With the changes to technology, you never know what will be the next big head liner, and will your business be ready? I hope this was very helpful, and I look forward to your feedback Sisters
I AM BeautifullyME
