Business credit is a financial fall back that helps to secure the future and creates a stronger foundation for the business. It is best to obtain and develop creditworthiness long before it is needed.
Starting a Business
In the interest of earning significant income from a business, it is a good idea to first test the waters by conducting investigative market research. Market research is necessary to determine if there is a demand for a particular business product or service. The data obtained from this research should help in identifying who the target customer is, which companies are competing for those customers, and help to forecast the amount of market share a new company will have. Market research is the type of information a burgeoning entrepreneur would be wise to invest in before making a greater financial commitment.
Even a cash heavy company with investor capital surpluses should build business credit. By using credit for small purchases during the early stages of a company’s development it can create powerful leverage to pay for events that may occur in the future, such as legal fees and lawsuits, buy outs, relocation, costly investments, expansion, and numerous other possible incidents and occurrences.
Set Up the Business
To establish business credit a company must first officially declare its identity, usually with a fictitious business statement. Next, it must obtain a tax identification number. Once the EIN is received, the company can set up a business bank account as a means of conducting financial transactions, obtaining revenues, and making payments. After applying for and receiving credit, the company must begin establishing credit history by making small purchases. Credit score is created by the credit bureaus, and scores are increased by keeping credit balances low and paying bills before the due date.
Developing a History
A good way to establish business credit is to purchase company supplies using credit and then paying each bill early. Most suppliers offer a discount to businesses that pay off their account within a specified time frame. It is important to borrow from creditors that regularly report to the credit bureaus, which if positive, adds to the credit score and generates leverage.