Getting a business off the ground isn’t easy. One of the hardest first steps is coming up with financing. You may have to borrow from friends, family, or your retirement. You may also have to use your personal credit to raise money for your business.
Set Up a Business Bank Account
Even if you’re using personal dollars, get an EIN and open a business bank account. Put your personal dollars in the account and start making payments out of it. Building good business credit is a lot like building good personal credit. You need to
- pay bills on time
- keep your utilization low
- maintain variety in your borrowing
As you build collateral or objects owned by the business that you can borrow against, do so. You need to make sure that your debt is varied. A business credit card is necessary, but you need secured loans as well, and collateral will help.
Get a Business Credit Card
Once your business has an address, you will get offers for a business credit card. For best use of this card,
- plan a purchase
- have the funds available
- buy the item with your business credit card
- pay off the card
These payoffs will be reported positively and help you build a strong business credit rating.
Borrow Money in Business Name
As soon as possible, set up business accounts. You want to work with companies that will give you Net 30 terms from large organizations that will report your successful payoffs to the business credit bureaus.
Put other businesses to work for you. For example, once you learn how a business line of credit works from Lantern Credit, you can return to this service rather than trolling through other loan applications. Lantern Credit allows you to make one application and get information from many different lenders. Keep your data updated with Lantern and save yourself the hassle of constant applications to multiple lenders.
Monitor Business Credit
While you can check your personal credit for no money, business credit monitoring will take some cash. For best results, consider signing up for a quarterly monitoring system. You’ll get information on your business credit rating four times a year and can review your results, looking for errors and odd transactions. This monitoring is critical for small businesses and sole practitioners. You may feel you don’t have time, but if you’re at risk for fraud, finding it early can prevent a small theft or clerical error from becoming a mess that takes hours to clean up and limits your borrowing capacity in the meantime.
The year 2020 has taught us that starting a small business can be a good way to protect ourselves against serious financial shocks. If your industry has been damaged by the pandemic, you may be perfectly poised for a working life change. Starting a business is never easy, but if you lay the proper groundwork, you can grow an income to protect you and yours from a sudden loss of income.