“Numerous business entrepreneurs don’t have great credit. Some begin a business because that they were laid off and don’t have numerous options. Some start a business when opportunity strikes, rather than when their personal financial situation is in good condition. Some experience separations and personal bankruptcies that can do damage on their credit.”
Have you ever been denied for business financing? If so, you’re not alone. More than 50% of small business owners who apply for financing get nothing. Personal and business credit scores are the primary cause for denial.
If you haven’t taken the time to establish strong business credit, now is the time to start.
I know from experience—in 2005, I received a rejection letter for business financing. My personal credit was spotless, so I figured it had to be a mistake. After some digging, I discovered that it was actually my business credit report that disqualified me for the loan. (It had mismatched business data, which is a red flag to lenders.)
Once I cleared up that error and began to build my business credit profile, I was able to access capital that made running and growing my companies a lot easier. Managing cash flow was no longer a nightmare, and I could actually capitalize on growth opportunities.
Over the past decade, I’ve learned the steps needed to establish business credit the right way. You may have already taken care of some of these, but you’ll want to make sure each one is checked off.
1. Put your business on the map
If you haven’t done so yet, you’ll need to establish your business as separate legal entity with your state. That means either incorporating, or setting up an LLC or S-Corp (discuss what’s best for your situation with a tax advisor). Next, you’ll want to apply for an Employee Identification Number (EIN) through the IRS website.
2. Open a business bank account
This will help you clearly separate your personal and business financials. Use this account to take care of all business expenses (including paying yourself by depositing into a personal account). If you apply for financing, most lenders will want to see your business account bank data to help them make the decision.
3. Get a business phone number
You can use a cell phone, VoIP, or a landline, but you need to have a separate phone number for your business. Make sure the number is listed, so it can be found.
4. Check to see if you have a D-U-