Did you know that half of all small business startups do not survive longer than five years? No one ever said that starting a new business is easy.
However, you can apply lessons learned from other startups to find success. One of the most common reasons for failure is a lack of funding or working capital. Startups simply do not have enough money to maintain operations.
You can mitigate this risk by establishing business credit. Read on to learn how to build business credit. Explore how building business credit can help your startup secure the financial resources necessary for success.
On the personal credit side, the primary way that lenders assess your creditworthiness is via a social security number (SSN). Obviously, your small business does not have a SSN. How do lenders even know that your small business exists?
In order to establish a credit file, you need to put in some work on the administrative side. For starters, you need a business bank account and official contact information. It is important to distinguish between your personal information and the business.
The next step is to apply for an Employer Identification Number (EIN). This can be done online using the IRS’s website. Now, you can file taxes and W-9 forms using your company’s EIN.
Another step on the administrative side is to obtain a Data Universal Numbering System (DUNS) number. This is a unique number issued by Dun and Bradstreet.
DUNS numbers are used to identify businesses and track their creditworthiness. Getting a DUNS number and EIN are crucial business startup tips.
Now that your business footprint is established, it is time to build business credit. The best way to do this is by taking out a business credit card.
Your business’s credit score is based on a number of different factors. Perhaps the most important factor is making on-time payments. Late payments tell lenders that you are not reliable and are a risk to default on any debt.
It is important that you do not rack up too much debt as a percentage of your credit limit. This is the way that lenders assess whether the business debt is too high.
Another way to build business credit is by taking out a loan. Then, like a credit card, it is your responsibility to make on-time loan payments each month.
Now that you have a credit history, it is important to keep up with it. D&B, Experian, and Equifax are three of the major credit reporting bureaus.
Sometimes there are errors that can negatively affect your business credit score. It is possible to work with the reporting bureaus to correct the record.
Without capital, your new startup is at risk of failure. It is unrealistic to expect revenue to cover all of your expenses in the beginning.
A business line of credit is a lifeline that gives your new company a chance to grow. Getting an EIN and DUNS numbers are critical steps in the process. Then, you must open a business line of credit and make on-time payments.
If you want to learn more about building business credit, apply for our school for startups program today.