To introduce business credit - it is similar to personal credit in the sense that it is a way to evaluate your business’s trustworthiness as a borrower and represents your ability to borrow money from authorized lenders, based on your business’s past actions. Personal loan, which is used to evaluate everything from the interest rate for your mortgage to your readiness for another credit card, is linked to your personal details all contributing accounts that are held in your name and your Social Security number. However, business credit is linked to the business with a separate tax ID number. Once you establish business loan, a change in your personal loan history, like late payments or a foreclosure, will not affect your business (and vice versa).
Business credit is something to build before you need it. If you are considering starting a new business, emergency savings are necessary to have, but there’s always the chance that something might deviate from the plan. At some point, you may need access to loan to cover unexpected costs (think cash flow issues or a sudden rent hike) – so you don’t want to wait to until you’re pushed into a corner to apply.
Establishing New Business Credit
A common mistake many new business owners make is funding their company expenses through personal loans, which in some cases makes them financially liable for the company’s actions. Moreover, as a new business owner, you will most likely be requested loans for both your business and personal accounts, each of which requires a moneylender to ask a bureau about your history. This means you will receive more inquiries than someone who is not an entrepreneur and since each inquiry dents your score, it is necessary to spread them across two separate files to lessen their impact. As an added benefit, establishing new business credit early on could mean that you will get better interest rates on loans when it is time to apply, since you’ve had ample time to build a solid history.
The first step in establishing new business credit is to make sure your business is legally recognized. You will need to first file the paperwork that makes your enterprise official in the eyes of the bank, if you have not already done so. Following this, you will need a separate phone, mailing address, and name as well as a separate Federal tax Identification Number (FIN) or an Employer Identification Number (EIN). You can apply for your EIN directly through a free service that will process your application within minutes. Once you have completed this, you can open a savings account and a checking account in the business name using the deposit funds and EIN number.
The final step is registering your enterprise with at least one credit-reporting agency. Before entering the process, make sure you do not already have a profile by contacting Dun & Bradstreet, which issues the D-U-N-S number. Once you have this personal identification number, D&B will then set up a new credit file for your business. Follow the above steps to establish new business credit, and make your business financially stable.
Business Funding Makeover helps business owners establish new business credit quickly and easily, and offers other credit building services. To know more about business credit, you may visit Wisegeek .