Establishing Small Business Credit - 5 Simple Tips

When we opened our business we were concerned about sales, production, and purchasing equipment and supplies. After a few months it was clear that we would need more than a personal credit source for our business and establishing business credit was necessary. Here are 5 important tips toward establishing small business credit:

Establish Small Business Credit - Incorporate:

A FIN number (Federal Identification Number) carries weight with banks, creditors and clients. It says, "I know what I am doing". Incorporation or forming an LLC (Limited Liability Company) does not require an attorney today and is not costly.

Establish Small Business Credit with telephone numbers and bank accounts in your company name:

When we incorporated our company we opened a checking and savings account in the company name and ordered business checks with the company logo, address and telephone number.

A business telephone line is costly, but it has credibility. The business and number is listed in the business pages of the local telephone directory and has an address. Most people are reluctant to call a cell phone number with no address listing. Creditors want established companies.

Establish Small Business Credit by starting small with supplier accounts:

We did not need inventory as our company was a service to Architects, Engineers and Construction Companies. We needed ink, pencils, reproduction services and paper - lots of paper! We ordered our supplies from local companies and paid with check on delivery, at first. Once we were established as a continuing customer I submitted for a monthly credit account.

Establish Small Business Credit by keeping good records and paying bills on time:

New companies attract "dead beats". We opened our company with only a few hundred dollars and no savings and we could not afford bad debt clients. We ran credit checks on prospective clients and this action allowed us to collect on invoices in a timely manner and pay our bills on time. As our establishment gained credibility, when "down" times came, our creditors were more than willing to work with us. Many times we paid bills before we paid ourselves.

Establish Small Business Credit - Banks and Credit Cards:

Most banks and credit cards will not consider extending credit to a business for the first 2 years. After that time you can apply with a credit history. Although our bank was willing to extend loans to us we chose not to apply. We did apply for and receive an American Express Business Card. Visa may be accepted more places; American Express carries more clout. Once while making a purchase with my American Express Gold Business Card, the clerk was having a difficult time getting the charge to go through the network. The manager came over to try and the clerk said, "It must be the card", as she handed it to the manager. He looked at the card and replied, "Not this card".

We still use the American Express Gold Business Card that must be paid at the end of the month. It has served us well for many years and we pay the bill on time. (Mostly) Business credit cards can "make" a company and they can also "break" a company. Be careful here.

Conclusion:

Establishing small business credit is almost as important as sales, production and receivables. Small business owners should take steps to establish credit in the name of their business to insure cash flow for necessary operations, such as payroll, taxes, purchases and overhead expenses. Good credit is gratifying and speaks of success.