Introduction to Business Credits: Tips and Tricks to Help Your Business Thrive

Introduction to Business Credits: Tips and Tricks to Help Your Business Thrive

  • Business credit is the ability of your business to be able to pay back a purchase at a later date.
  • This can come in the form of multiple different options, including personal guarantees, credit cards, and more.
  • Most people don’t realize how beneficial it can be to create a line of business credit, as it helps reduce liability.
  • In the end, anyone who wants long-term success should find a way to create business credit for their firm.

When it comes to your business, you want all the resources available to make the best decisions. Luckily, business credit is one option that you have to help your business thrive in today’s society. Business credit is an excellent opportunity for you to have a line of credit solely for your business, create more of a financial presence, and set yourself up for success.

We’re going to talk about business credit, why it significantly helps you prepare for your business expenses, and how exactly you can get business credit for your business. We will also talk about the different types of business credit available. Even if you are a total newbie to the business credit world, this will give you the details you need to become an expert and make the right decision for your business.

What is Business Credit?

Business credit is the company’s ability to buy something new and pay for it later. This can come in various ways, including a business line of credit or a credit card solely for the business. Most people don’t have a business line of credit until they are at a significant level, and that’s fine.

Likewise, most people don’t think about a business credit line until they’re at a certain point within their business. But for most, it can be a prosperous decision that helps the business out with their expansion and their health in the long-term.

How to Get Business Credit for Your Firm

To get business credit for your firm, there are a few steps that you need to follow to make sure that you are on the right track and that you have everything set up appropriately. Here are the general steps most people follow to get business credit for their firm.

Step 1: Hold a Business Credit Score

Getting a business credit score is not as difficult as you think, and it can come with simply registering your business and beginning to borrow money as a business. If you are a sole proprietor, this typically is tied to you. However, if you are an LLC, your business will have its business credit.

Step 2: Set Up a Commercial Bank Account

The next step many people need to take to have business credit is to set up a commercial business account. This is typically done under the name of your business, which means you likely need to set yourself up with an LLC as well.

However, for the commercial business bank, your name will be attached, as well as your personal information. Still, this account will solely be to fund your business and it is definitely different from an individual bank account that is only for personal use and expenses.

Step 3: Create an LLC

If you haven’t done so, the next step is creating an LLC. This ensures that you officially are separate from your business. This would alleviate any concern you would have financially in the event of challenging situations, as it alleviates your liability if anything significant happens to your business or client.

Setting up as an LLC also entails registering for a company where you are located. This is important because different states have different restrictions and processes, so be sure to do your research. In most cases, signing up and creating an LLC can be simple and cost around $100 for some states.

Step 4: Get an EIN from the IRS

The next step is ensuring you get an EIN from the IRS. This is going to help you to separate your business for when you file taxes as a business and individual. This would ensure a separate process for your business’s taxation every tax season.

Having an EIN is necessary to get business credit, because it shows your firm’s credibility and its legitimacy. It will also register you with the IRS officially and show you are a consistent business with income.

Step 5: Get a Dedicated Business Phone Number

The next step many people don’t think about is finding a way to get a dedicated business phone number. Many people choose to have a pass-through system so that the phone number automatically redirects to their number without any trace, or they decide to have two phone numbers.

In most situations, it is a very streamlined way to ensure that your business is secure. You also have more professional-looking communication due a different phone number. This will also help you look professional to the lenders if you want to take out a line of credit.

Types of Business Credit

Now that we have discussed the ways to get business credit and the steps needed, here are the best types of business credit available and what they could mean for your business.

Installment Accounts

These typically are commercial loans for a fixed amount of money. You can repay the lender over a specified period, and your interest rate is also set in this case.

Revolving Accounts

These accounts are typically categorized as lines of credit or small business credit cards. These are great for borrowing money. Like regular credit cards, borrow up to the limit and be sure to pay it all back so you can keep your credit score high for your business.

Vendor Accounts

These are also called net-30 accounts to allow you to pay for goods and services you have purchased. These are great for buying now and paying later, and they can help stretch the business’s cash flow over time. There are also other account types that count as vendor accounts, like the net-60, net-90, and others. It all depends on your preference as a business!

Personal Guarantees

These business credits require signing a document to open an account and making you a co-signer for the business or the loan. Then, if your business fails to pay back, it falls on you as the next liable person. This can be a great source of income for startups, but it should also be managed appropriately to avoid unnecessary debt and personal payments on the guarantee!

Help Your Business Expand and Succeed with Business Credit

When used appropriately, business credit can significantly benefit any business. These insights will help you on the right path to creating lines of credit and credit cards specifically for your business. No matter where you are in your business journey, you have options at your disposal!

For more information and tips for all things business and personal finance, feel free to check out other blogs on the website for new and existing content.