How To Establish Business Credit For Your LLC Startup

There are several important steps to follow to establish business credit for your LLC startup. Like personal credit, strong business credit can help lower your company’s insurance premiums or interest rates. It can also help you get approved for a lease, loan, or business line of credit. Building business credit is also one way to separate your personal finances from your business. You may find that you need to sign a personal guarantee when taking out a business loan or opening a business credit card. As a finance professional, this means you will be personally liable for debt if your business is unable to pay it back. This could put your personal assets at risk. However, once you build business credit, you may qualify for a business loan without personal guarantee. Read on to discover how to establish business credit for your LLC startup.

Obtain An EIN

Once you have incorporated your business as an LLC, it is crucial to obtain a federal tax ID number (EIN). An EIN is analogous to a social security number for your company. This number is required on federal tax filings. Moreover, you also need it before you can open a business bank account in the name of your LLC. To comply with IRS regulations, many larger businesses also require an EIN from their vendors to pay them for their services. Obtaining an EIN is a vital fundamental step that you must take to build business credit when starting up your LLC.

Build A Foundation

Before you can build strong credit for your LLC startup, you need to build a foundation for your business. You need to make sure that your business itself is established before you can start to foster lasting positive credit relations with other companies. Your business should have a phone number and be listed in your local print and online directories. Ideally, your company should have a website to further show your credibility. You will also want to open a bank account specifically for your business in your legal company name. You should start using this account to regularly pay your LLC’s bills. Importantly, opening a business credit file is essential to start building credit. It is essential to build a foundation for your LLC startup before you can establish business credit.

Apply For Credit In Your LLC’s Name

Once you have built a sturdy foundation for your business, the next step is to apply for credit in your LLC’s name. There are several different types of credit that may suit your LLC’s needs. For example, service credit is the easiest form of credit that you can establish for the first time. This form of provider covers internet, phone, satellite TV, web hosting, and other utilities. Depending on your industry, you also might consider vendor, supplier, or retail credit. Perhaps the most important tool to separate your personal purchases from your business purchases is a secured or unsecured business credit card. It is essential that you apply for a business credit card that only reports to business credit agencies. This way, you can protect your personal credit. Applying for credit in your LLC’s name is another significant step towards establishing business credit.

Make Payments On Time Or Early

After you have received credit approval, it is critical that you make payments on time or early to stay in good credit standing. Consistent timely payments are one of the key factors to ensure a good credit score. It is worth noting that some top creditors only assign perfect credit scores to those who pay early. A long credit history can help your business with loan approval in the future. So, the sooner that you start establishing business credit, the better. It is wise to limit your business credit 20% to 30% of your maximum credit limit to help raise your company credit score. Making payments on time or early is an essential step to establishing good credit for your LLC.

Borrow From Lenders Who Report To Credit Bureaus

If you are making your credit payments on time and in full, the next step to establishing your credit is borrowing from lenders who report to credit bureaus. Ideally, you want your lenders to report to one or more of the main three credit bureaus: Dun & Bradstreet, Experian, or Equifax. Luckily, most traditional financial institutions regularly report borrower’s repayment histories to business credit bureaus. However, some online lenders do not file these reports. To ensure that you build credit, you will want to check your lender’s policy. Aside from your lender, it is wise to maintain current credit reports with all three bureaus to monitor your credit. Borrowing from lenders who report to credit bureaus is an essential step your business needs to build credit and improve your financial standing.

There are several important steps that your LLC needs to take to build credit, especially as you are just starting to grow your business. First, you need to obtain a federal tax identification number (EIN). Next, you need to use this number to start building a foundation for your business and open a bank account for your LLC. Once you have built this foundation, you can apply for the type of credit that best suits your company’s needs. After you have obtained credit approval, you need to make payments on time or early to start building a good credit score. Finally, be sure to borrow from lenders who report to credit bureaus to get recognition for your efforts. Consider the above essential steps to establish credit for your LLC startup.

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