Establishing business credit can be a very important step in the life of a business.
Having access to credit is important whether the owner chooses to:
- use the credit immediately
- maintain the credit for emergencies
- Use the credit when seizing special opportunities.
Most owners will agree that having credit and not needing it, beats needing credit and not having it. It is always best to be prepared!
Fortunately, establishing business credit is very similar to building personal credit. So, with a little direction, many owners find that they can get it done much faster than they expected.
The basic building blocks to establishing business credit:
(1) The business starts with a clean slate –NO Business Credit. This is the time to establish a firm foundation and ensure that whatever business credit is acquired is managed well. Poor business credit is established the same way that poor personal credit is . . . Mismanagement!
(2) The business applies and gets approved for credit from sources that report to business credit bureaus. It is very important to understand which sources report to the business credit agencies. Although establishing credit from non-reporting sources will provide owners with funding, it will not build your credit profile.
(3) The business uses the credit and makes timely payments. If possible repayment should be automated because a misstep in managing repayment could have severe negative consequences.
(4) The business establishes a positive business credit profile. In order to establish a profile, the business must have the basic requirements listed by the credit agency (i.e. Dun & Bradstreet, Equifax and Experian). It is advisable to verify requirements and accuracy of the credit profile in the early stages to easily correct errors.
(5) As the business uses the credit and makes timely payments, the credit profile will build and the business will be extended additional credit.
There are some Business Credit Essentials necessary to start:
To establish business credit separate from your personal credit, you must establish a separate identity for the business which is accomplished by getting an EIN (Employer Identification Number). In addition, the requirements of each agency should be checked (ex. Experian requires dedicated business line and bank account beyond the EIN)
Fortunately, the IRS has made obtaining an EIN a very simple process that can be done in an online application with the EIN issued same day.
BEFORE PROCEEDING TO THE EIN APPLICATION
👉 Determine Your Business’ Eligibility
- Is your principal business located in the United States or in U.S. Territories?
- Is the person applying online in possession of a valid Taxpayer Identification Number (SSN [Social Security Number], Business EIN [Employer Identification Number, or ITIN [Individual Taxpayer Identification Number])?
- Has the person applying received more than one EIN in a day?
👉 Set Aside Enough Time to Complete Entire Application in One Setting. Your online application session expires after 15 minutes of inactivity, so be sure you have time to fill out the entire application
👉 Gather The Following Information:
- Name and Social Security of Applicable Party
- Business Address and related details
- Business Type (the following are the only viable types for purposes of establishing credit)
Corporation – the form will ask if :
a) Inc.
b) S-Corp ( or Subchapter S )
c) Personal Service Corporation
d) REIT (Real Estate Investment Trust)
e) RIC (Regulated Investment Conduit)
f) Settlement Fund IRS Sec 468B
g) Limited liability company – the form defines what an LLC is and ask how many people are in your LLC.
👨🦰 One person – your business is initially listed as a ‘disregarded entity’.
👨🦰👨🦰 Two people – your business entity is initially listed as a partnership.
👨🦰👨🦰👨🦰 Three plus – Regular LLC status
These LLC designations are only used for classification purposes when you are filing
👉 Fill Out The EIN Online Application
👉 Celebrate: Once you see the confirmation page, you are done!
Establishing credit before it’s needed can be a key step in:
- maintaining a competitive edge
- keeping the doors of the business open
There are many things that an owner must consider when establishing business. When done right, it can save enormous time and frustration.
Choosing to work with the TMB Funding Network, provides expert guidance every step of the way. Owners get it right the first time and don’t waste any time trying to figure it out or trying to fix mistakes in the future.
Give your business the competitive advantage.
Schedule Your No-Cost Business Funding Consultation