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Business Launcher
We’ll guide you through 6 important steps of establishing your business and building a business credit profile.
Establish a legal entity for your business
Why is this important?
- You may need to establish your business as a legal entity in order to open a business bank account, apply for credit or register your business with Dun & Bradstreet or Experian.
- Creating a separate legal entity for your business is a good way to protect yourself and your assets legally and take advantage of tax benefits for business.
- This is an important step in separating your business finances from your personal finances so that, eventually, your business debt does not affect your personal credit scores.
The essential first step in building business credit is to separate yourself from your business by registering as a legal entity. A corporation is a legal entity distinct and apart from you such as an S corp, a C corp, or a limited liability company, LLC. A sole proprietorship, although not a corporation, can still be used to build and apply for business credit, but it is not ideal.
Because an LLC is a separate legal entity, and very easy to register for, it is one of the most common ways to begin to building business credit.
It is often smart to talk with an attorney or accountant about which structure works best for your business. Alternatively you could use an incorporation service like Inc For Free. It can also be done online or in person through your local Secretary of State. Filing fees vary, but usually start around $100.
Incorporation Services by Inc Authority
Get an employer identification number (EIN)
Why is this important?
- You may need an EIN in order to open a business bank account, apply for credit, or register your business with Dun & Bradstreet or Experian.
- You may also use this number when applying for credit for your company with suppliers, and leasing companies.
- This is an important step in separating your business finances from your personal finances so that, eventually, your business debt does not affect your personal credit scores.
A Federal Tax ID or EIN is the corporate equivalent to a social security number. It’s a nine-digit number assigned by the IRS to business entities operating in the U.S. in order to identify each company. This number is what identifies your business and is used to create your company’s credit file with the various business credit agencies. Creditors use your EIN number to pull your company’s credit file in order to determine whether or not to extend credit to your business.
Here are 3 options for getting an EIN:
- If you work with an attorney, accountant or incorporation service, many times obtaining an EIN is included or offered as an option.
- You can also apply for an EIN for your corporation or LLC by either completing an SS-4 hard copy form.
- Or by filling out the EIN Application Form online.
Register your business with Dun & Bradstreet
Why is this important?
- It’s the first step to getting a D&B credit score and report.
- D&B credit reports are used by many vendors/suppliers as a way of ensuring your company is safe to do business with.
- Your D&B report is also checked when doing business with the U.S. government or large chains like Walmart.
Dun & Bradstreet is a business credit bureau that generates credit reports and ratings, based on industry reported information and its own analytical data. Registering with Dun & Bradstreet will create a D-U-N-S number for your business. A D-U-N-S is a unique identifier for businesses and is used for a variety of purposes, including establishing business credit.
Here are 3 steps to take to register with Dun and Bradstreet:
- Check to see if your business is already registered for a D-U-N-S number on Dun & Bradstreet’s website.
- If you DO find your business using the search above, you already have a DUNS number.
- If you DON’T find your business, you can apply for a free DUNS Number. (Note: it can take up to 30 days to get a DUNS Number after applying)
Get a small business checking account
Why is this important?
- Having multiple years of positive cash flow data in your business checking account is a requirement for many lenders.
- Separating your personal finances from your business finances is a smart move because it helps you build business credit, limits personal liiability and provides tax benefits as well.
- In most cases, a business checking account is required if you want to accept credit cards through a swipe terminal or online.
- It can also make it easier to share your business financial responsibilities with one or more of your employees.
Businesses often will need a bank reference. Many small business owners start out using their personal bank account for business transactions. This can make filing your business taxes tricky, and can also hurt you when applying for business loans, since most lenders like to see at least 2 years of history in a business checking account.
More important than your account’s lifespan, your small business checking account should show a cash flow capable of taking on a business debt. The optimum average daily balance of your account will depend on your type of business and the amount of financing you’ll be seeking.
Most banks and credit unions offer business checking accounts. The choice is yours when it comes to selecting where to do your business banking. Here are some things to look for:
Next steps:
- Check here for the best business checking accounts.
- Pay attention to the fees. Some fees to watch out for are monthly service fees, transaction fees (when you reach a certain transaction threshold in a month), and fees for large deposits.
- Consider bank size. Small bank or big bank? Small banks and credit unions often give you more personal interaction and flexibility, but rates and fees may be higher than the big banks charge.
Establish a positive business credit history
Why is this important?
- Dun & Bradstreet requires businesses to have at least 4 tradeline before calculating your PAYDEX score for your business.
- Creditors, suppliers and vendors look at your business’s credit history when determining whether to do business with you.
- Making payments on time, on behalf of your business, shows that your business is financially responsible and a lower risk to loan to.
- Having an excellent payment history will also help you get lower rates and more options when you apply for a bank loan or credit card.
When you take out loans under your own name, you build personal credit but not your business’ credit. Open credit and other trade accounts in the name of your business and start establishing your business credit. You should also put whatever business accounts you have in the name of your business. Make sure that you use the same name, address and information that you used when establishing your business entity and registering with the business credit bureaus.
Next steps:
1. Open a trade account with vendors that report to the business credit bureaus.
2. Once you’ve established credit with 1 or 2 of the above, choose 3-5 from the following list:
3. Get a business credit card that reports to the business credit bureaus.
Sign up for a free Nav account to monitor your personal and business credit.
With a free Nav account, business owners can monitor their personal and business credit reports for free, get alerts to changes in their scores, and find actionable tasks to achieve specific goals.