Many startups require business loans to get their feet off of the ground. Unfortunately, lenders rarely offer quality loans to entrepreneurs who do not have business credit for startups. Numerous lenders avoid lending capital for startup purposes altogether. Others offer loans with extremely high rates. As an entrepreneur who needs funding for your startup, you need to establish business credit. Once you credit to your company’s name, you can receive the financing you need at good rates. Then, you can begin making a profit. Continue reading to learn how to build business credit for startups.
Establish A Business Entity
To begin building business credit for startups, you need to establish a business entity. Entrepreneurs who do not end up using their personal finances to fund their startups. In turn, they struggle financially in every aspect of their life. To avoid making this mistake, file your company legally. Choose a type of entity that will benefit you long-term. Refrain from establishing a partnership and a sole proprietorship. While these types of entities do have some benefits, they do not offer financial advantages. Those who build partnerships and sole proprietorships combine their personal and business finances. This occurs because the law does not differentiate the business owner’s capital and their company’s. Thus, lenders look at your personal credit history rather than your company’s when considering you for a loan. Establish a financially savvy business entity to build credit effectively.
Get A Tax ID Number
Once you establish a business entity, get a tax identification number to build business credit. Your tax identification number proves that you have a legal business entity. As the name suggests, it is used mainly for tax purposes. You cannot file your company’s taxes without an EIN. Similarly, you cannot make any reports without the number. In addition, business owners need tax ID numbers to open business bank accounts. You need an account to build credit in the first place. Only then can you look into your options such as revolving credit, which provides repayment flexibility. Therefore, obtaining a tax ID number is a crucial step to establishing business credit for startups.
Open A Business Bank Account
Another critical step to take to build business credit for startups is to open a business bank account. As stated above, you need a separate business bank account in order to earn credit. Many lenders turn down entrepreneurs who have not maintained a business bank account for at least 2 years. With this in mind, you need to open a bank account as soon as possible. Certain banks require business owners to keep a minimum amount of money in their accounts at all times. Many have business credit card limits as well. Keep this in mind during your search for a quality bank as well as during the set up process. Use your account wisely. Maintain an affordable balance. Lenders will view your account as a spitting image of your average daily balance. To begin impressing them, open a bank account and begin building business credit for your startup.
Apply For A Business Credit Card
After entrepreneurs open business bank accounts, they apply for business credit cards to start establishing business credit for startups. Those who build credit effectively move onto other accounts and vendors. These channels function in the same ways that credit cards do, but they do so at a higher level. They, too, transfer company transactions to the credit bureaus. In order to take the leap to working with these other accounts and vendors, you need to obtain a credit card. Speak with your bank about the requirements to get approved for a small business credit card. Inquire about business credit card benefits. Many business accounts have rewards programs that assist entrepreneurs in establishing business credit for startups.
Build Good Credit Relationships
In addition to the above steps, entrepreneurs need to build good credit relationships to establish business credit for startups. Look to industry-relevant vendors and suppliers to kick-start these relationships. When you maintain quality relationships with the right professionals, you open up numerous doors to build business credit. If you and your supplier have a good professional relationship, they likely will not force you to pay them upfront. Instead, they will secure a line of credit with them. In this way, positive working relationships increases entrepreneurs chances of building business credit for startups.
In order to receive funding from lenders, you need to establish business credit. To do so, register your startup as a business entity. Then, obtain a tax identification number to meet requirements for opening a business bank account. Once you have that, open a business bank account at a bank that also offers rewards programs and benefits. Apply for a business credit card to get your foot in the door with vendors and other advantageous accounts. Lastly, maintain good credit relationships with professionals like suppliers to secure lines of credit. Follow these steps to build business credit for startups and receive the loan you need.