How to Build Business Credit Quickly: 5 Simple Steps

By Marco Carbajo
U.S. Small Business Administration
Published: December 15, 2019

 

If you operate as a sole proprietorship, it’s important to understand there is no legal or financial separation between you and your business.

Building business credit plays a crucial role in your company’s funding ability. Whether you operate as a limited liability company or corporation, your business has the ability to establish a credit file separate from you as an individual.

When you register a business (LLC, LLP or corporation) it becomes recognized as a separate legal entity with the ability to enter into contracts. It’s treated as a separate being from you as an individual.

If you operate as a sole proprietorship, it’s important to understand there is no legal or financial separation between you and your business. If that’s the case, when you obtain credit or apply for funding, all activity will be solely tied to you as an individual and reflected on your personal credit reports.

To keep your business and personal finances separate, the first step is to start building credit in your company’s name. If you want to build business credit quickly here are five simple steps.

Step 1 – Choose the Right Business Structure

To make your business a distinct legal entity requires that you select a business structure such as an LLC, LLP or corporation. Remember, sole proprietorships do not create a separate business entity.

Once you form your business entity, the next step is to register your business. This particular step is dependent on your structure and where your business is located.

For additional support on choosing the right structure for your company and registration be sure to check out SBA’s Business Guide.

Step 2 – Obtain a Federal Tax ID Number (EIN)

You can apply for a federal tax ID for free using the IRS assistance tool. This is a nine-digit number assigned to your company which you will use for things such as filing company tax returns, opening a business bank account, applying for licenses and permits, and applying for business credit.

Step 3 – Open a Business Bank Account

Once you have your federal tax ID, you’ll want to open a business bank account for your company. This is a mandatory step in creating a clear separation between your business and personal expenses.

Your banking relationships play an important role in your company’s funding potential…[MORE]

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To read the entire article by Marco Carbajo on the U.S. Small Business Administration website, visit: How to Build Business Credit Quickly: 5 Simple Steps