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Building a business is hard. Funding a business is even harder. Many small business owners have all but destroyed their personal finances in the process.
The good news is, it doesn’t have to be that way. With corporate credit, a small business owner can access a corporate credit card, or even multiple corporate cards. Your business will eventually be able to fund itself.
What is Corporate Credit?
Corporate credit, or business credit, is credit in the name of your business rather than in your name personally. Sometimes a personal guarantee is required, and sometimes not. With strong corporate credit, you are less likely to have to provide a personal guarantee in some cases.
While not the worst thing ever, and sometimes necessary, it is a good idea to limit the use of a personal guarantee as much as possible.
When you apply for a corporate card or any other type of corporate account, you use your business name, your business contact information, and your EIN instead of your Social Security Number.
Then, the business is responsible for repayment. An actual business credit card does not even show up on your personal credit report. Meaning, your personal credit scores will not be affected by your corporate credit accounts.
This is important for any business owner, but with many retired individuals starting businesses these days while on a fixed income, it is especially important for them.
How to Build Corporate Credit
It starts with how your business is set up. Unlike personal credit, corporate credit does not build passively on its own. For more information on the differences between business credit and personal credit check out our article, Business Checking vs Personal Checking.
If your business is not set up in a way that provides separation from you as the owner, any credit accounts will be considered personal, and they will likely report to your personal credit reports. So, how do you set it up in a way to start building corporate credit separate from consumer credit?
Step 1 – Choose a Company Name and Contact Information
Ensure your business has its own phone number and address. In addition, you need to choose a business name that does not indicate a risky industry.
The phone number needs to be toll free and listed in the 411 directory. You can get a business phone number that will work over the internet instead of phone lines.
You can also set it up to forward to any phone you want too. Then, simply use your personal cell phone or landline if you want. Whenever someone calls your business number it will ring straight to you.
The address needs to be a physical address where you can receive mail. A P.O. Box or something similar will not work.
If you run your business online or from your home, and do not wish to use your home address, consider using a virtual office for a business address.
Step 2 – Establish a Business Entity
Incorporating your business as an LLC, S-corp, or corporation is necessary. This adds credibility to the idea that your business is legitimate. It also offers some protection from liability.
The option you choose does not matter as much for building corporate credit as it does for your budget and needs for liability protection. The best thing to do is talk to your attorney or a tax professional.
Step 3 – Get an EIN Number for Your Business
Get an EIN for your business. This is an identifying number that works for businesses in a way similar to how an SSN works for individuals. Some business owners used their SSN when applying for business credit accounts.
This is what a lot of sole proprietorships and partnerships do. However, it really doesn’t look professional to lenders, and it can cause your personal and business credit to get all mixed up.
You need an EIN. You can get one for free from the IRS. The process is fast and easy. You will need your business name and contact information. The form also asks for your entity type.
Step 4 – Open Up a Business Bank Account
Open a separate, dedicated business bank account. There are a few reasons for this. First, it will help you keep track of business finances. It will also help you keep them separate from personal finances for tax purposes.
There is more to this story though. For example, there are some types of funding you cannot get without a business bank account.
Also, often lenders and credit cards want to see a business bank account with a minimum average balance. Not to mention, you can’t get a merchant account without a business account at a bank.
Without that, you can’t accept credit card payments. Studies show consumers tend to spend more when they can pay by credit card.
Step 5 – Apply for a DUNS Number
Business credit reporting agencies use their own system of identifying numbers. Some of them are simply assigned by the agency, like the Experian BIN.
Yet, you have to apply for a DUNS number from Dun & Bradstreet. They are the largest and most commonly used source of business credit reports. Every credit file in their database has a D-U-N-S number. Apply on their website. It’s fast, easy, and free.
Step 6 – Open Business Tradelines
Once your business is properly set up, you need to open business tradelines. That sounds easy enough, right? The thing is, if you want to build corporate credit, not just any tradelines will do.
Without already having established corporate credit, it can be hard to get tradelines in the name of your business. You have to find those vendors that will extend credit without established credit. They also have to report your payments to the business credit reporting agencies.
The key is finding vendors that do not require a credit check for approval. You want those that only require factors like minimum time in business, EIN, business bank account, or other business basics, for approval.
Note: They may require your SSN for identity and informational purposes, but not to pull personal credit.
While many will let you know what they require for approval, few advertise if they report. This can make it difficult to get enough accounts reporting to build a business credit score.
We compiled a list of net 30 accounts that do report to the business credit bureaus.
Additionally, below are a few options to get you started. Each one of these builds your corporate credit a) without checking your personal credit, b) without requiring a personal guarantee, and c) is accessible to even new businesses.