Not every startup business is going to draw attention of venture capitalists – Actually, it’s estimated that almost less than 1% get working capital from venture capital. Except you have personal financial savings which you are ready to invest into your startup business, there are some other primary options such as family members and friends, bank loans and Crowdfunding.
Even if you don’t want to get a small business loan in the startup phase of your business, it’s an excellent way to ensure that you set up and build your business credit in the first place – as it is also a fact that in a business you never know when you need capital for expansion and growth. Here are some tips that will help you to establish and build a healthy credit for your startup.
- Incorporate Your Startup
Discuss this with your accountant to decide how you should incorporate your startup business; either you want to setup as an LLC, C-Corp or S-Corp. No matter what way you opt for, you’ll have to do this before you even consider about building your credit. You will need a legal entity to use as a foundation to develop. You can also incorporate your startup business through state websites or additionally you can use a third party website, such as CorpNet.
- Get An EIN
Once you have got your startup’s incorporated, you will need an Employer Identification Number from the Internal Revenue Service (IRS). In case you use a 3rd-party service to incorporate, you’ll have some help with this.
- Get A Dedicated Phone Line And Address
In case you don’t have a physical location for your startup business, do not forget renting a virtual office to get a unique address for your business. For a phone line, choose a voice over IP (VoIP) service as opposed to a cell phone.
You need a dedicated office address and a phone line to submit to business directories. Basically these are the directories that lenders source their data from, therefore it is important for your startup business to have consistent contact details listed on all business directories.
- Open A Business Bank Account
Don’t mix up your personal and business expenses. It is advised to open a business bank account. You may try this as soon as your Employer Identification Number (EIN) is issued. In case you have a long-term relationship with your bank, consider opening your business account. Every now and then, an existing relationship can result in automatic pre-approvals for business lines of credit and credit cards.
- Open A Secured Business Credit Card
Startup business applying for a credit card will seldom bring about an approval because there is no credit history for the business. In case you have some additional funds lying around, open a secured credit card. For the most part banks provide credit cards and you can get lines up to $25,000 – the limit is same to the deposit used to fund the card.
- Set Up Lines Of Credit With Vendors
There are some big-box stores that offer lines of credit and report directly to the credit bureaus. These are the associations that might previously be established, needing you just to speak to them and ask for a net-30 credit line. There are also some industry-specific lenders that could potentially report to credit bureaus. You simply need to speak to them to find out. Additionally, take a look at a gas card as most fuel stations have corporate fuel cards that report.
- Avoid Application Hassle
Don’t apply for so many business loan programs and credit cards for your small business at the same time – from a lender’s perspective this may seem like you are trying to get multiple amounts of capital without further ado, leading them to consider that the business is in trouble. You need to apply for credit only when you need it.
- Be Industrious And Pay Your Bills Early
You need to pay your bills early, if not then at least on time. A single late or overdue payment can obliterate your overall business credit.