Thursday, January 3, 2013
Building Your Small Business Credit
Starting a business in a recession is never easy and most small soapmaking business owners fund all their purchases via personal credit. It’s fine to do in the beginning but when revenues increase and you are making larger purchases you may need to look for new funding. This is where your business comes in. You will need to first apply (if you have not done it already) for a EIN number with the IRS (this is an Employer Identification Number), Register your business with your local and state agencies and designate a legal entity for your business (sole proprietorship, LLC..etc).
Remember when you had to establish personal credit? You applied for credit and used your credit to build a history which was then reported to the various credit bureaus. Well in business the terminology is a little different and works like this: As a business you will try to establish trade credit and it is when another business issues your business credit= trade credit.
At that point a business trade credit file will then be established, which is then gather by various business credit bureaus:
• Dun & Bradstreet
• Experian Business
• Equifax Business
But the bad thing is that other businesses are not required to send in your information and the credit bureaus may never receive the good credit information that you have established. It will be up to you to check this report and make sure that your business credit is being submitted. It may not matter to you now but with luck someday you may need to expand and get a loan. Then you will need this credit history.
You can check to see if your business is on file for FREE at DUN & BRADSTREET- http://www.dnb.com/ and sign up for your DUNS number. You can also pay to have your credit pulled from the above resources as well.
Some fine points to remember when establishing business credit:
1. Keep a business phone line separate from your personal line if your business is mobile. It sends up red flags if you do not have one.
2. Update or create your business plan
3. Find businesses willing to extend you small credit and ask to see if they report to the agencies
4. Start at least 6- 8 months before you need the loan.
If you are intrested in starting your own soapmaking business join us for our 2 Day Weekend Workshop Jan 26-27, 2013. Click Here For More Information!