How to Establish and Build Good Credit for Your Startup

A startup business has a lot of hurdles and obstacles to overcome. One of the biggest obstacles is obtaining credit. As a young business, it is critical to establish credit – more critical than anything else. Without it, you won’t be able to apply for loans and investors won’t take you seriously. In fact, building credit and improving your credit score should be at the top of your priority list. Luckily, it is really easy to build business credit. You must remember that your business is its own entity – separated from your finances and from your partners’ finances. It is also important to remember that your business needs credit to survive. Here is how to establish and build good credit for your start up.
First, you need to incorporate your startup in the state where you will be doing business. In most cases, you will incorporate your startup as an LLC, which stands for limited liability corporation. Incorporating your business will create a firewall between your business and your personal expenses. Moreover, with an LLC you can apply for a bank account and other accounts that legitimize your business. Also, incorporating will allow you the opportunity to apply for an EIN, or employer identification number. With your LLC and EIN, you can open a bank account in your business’ name – you can also apply for a credit card.
When it comes to using a credit card, you probably want to apply for a low interest credit card, which is perfect for startups. In the beginning phase of your business, you will be completing a lot of orders, but you won’t have a lot of money up front to produce those orders. A credit card can help you purchase supplies and materials to produce orders. However, you may not always get paid on time – even though you have a purchase order agreement. This could put you in the predicament of not being able to pay your credit card bills on time. For this reason, you want a low interest rate – the last thing you want is to be buried in debt.
Next, you want to open various accounts and lines of credit. For instance, you may want to sign up for a commercial real estate lease or lease a fleet of company vehicles. Having these open credit accounts can help boost your credit and credit score, especially if you pay your bills on time. When it comes down to it, you may also want to open a line of credit with your manufacturer as well – this can also help build your business’ credit and boost your startup’s credit score.
As you can see, establishing and building good credit for your startup requires a lot of paper work, but when you finally get that desirable credit score, you will realize that all the hard work was well worth it. Not only will you be able to extend your lines of credit, but you will also be eligible for loans and investors will take your business much more seriously. In the end, building credit may just be the key to success.