When you start a new business you generally do so with your own funds, or funds borrowed from friends and relatives, because till your business is up and running it is almost impossible to get business credit. Business credit is only possible when banks and other financial institutions see your business as a sound one which would be in a position to honor its commitments.
To start a business correctly, you would first need to have the correct legalities in place. Get your occupational license, a Tax ID number, and a checking account. You can make a start with just a Social Security Number, but a Tax ID number shows more credibility. Register yourself with the credit bureaus and if possible get yourself a business credit card. The credit card should be used initially to make a few small purchases which are business related and which you could pay off immediately. This way the creditworthiness of your business card is established and the limits could be raised.
You need to establish business credit if you are going to run a successful business. It is as important as attracting customers and satisfying your clients. Business credit is easily established if you run your business properly and are perceived by all the others in the trade, your customers and suppliers as some one they can rely on. You can do this by ensuring that you meet all your commitments whether in service to the customers, payments to suppliers and your own staff, in a correct manner and in the time promised. This shows that you are seriously committed to the business and are absolutely trustworthy. At the same time also ensure that your own personal finances are clean and do not show any doubtful credit history.
Banks and financial institutions will ask you to provide personal guarantees during the first few dealings with them, and if you have a clean credit rating this could encourage them to consider you for further credit for your business. Small businesses start ups are not easy and the failure rate also is a cause of concern to the lenders. They therefore seek the security of your personal assets in their initial credit dealings with you.
Another way of establishing business credit is to look for support from people who are already in the business. So if an already established business owner vouches for your creditworthiness, the lenders would almost certainly extend business credit to you. You would be able to get such references only if you have established yourself in the first place with your potential backers as someone who has a properly run business and has honored all his commitments. So you have to work on this in the initial stages.
By now you would have got yourself a business credit card and could use the normally high limits available to you to buy materials or services for your business. But while doing so, always keep in mind that you would have to pay up the dues on the business credit card promptly if you want to continue to have the reputation of a creditworthy person. Some people tend to go overboard when they see the high limits available on the business credit card and run up huge out standings that their business finds it difficult to sustain. Once your business credit card acquires the reputation of being unreliable in meeting its debts, this could seriously affect your business credit ratings and removing this stigma of being a poor paymaster, could take you quite a bit of time. So use your business credit card wisely and plan for its repayments.
Business credit is comparatively easy to get once you have established a reputation for being a serious and competent businessman by consistently meeting your financial and business commitments and ensuring that your business credit card is used in a proper and planned manner.
