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However, a legal entity like a corporation or a limited liability business can construct its own credit profile. After all, the whole objective of forming a corporation is to keep the owners of the company separate from the corporation.
To take advantage of this service, the company will require a Tax ID Number (EIN). This number is assigned to businesses by the Internal Revenue Service (IRS).
The EIN can be used instead of your Social Security Number when applying for a loan or opening an account in general (SSN). The EIN is similar to the industry's social security number.
Corporate credit, like ordinary credit profiles, must be correctly constructed and built up in order to qualify for the credit. A strong corporate credit history, on the other hand, can help your company qualify for loans at cheaper interest rates than most consumers. As a result, you should work rapidly to create and maintain a good corporate credit record.
But first, let's look over the requirements for a business to create credit:
Prequalification for Business Credit
An EIN-based small business credit card is solely issued in the name of the company and has no bearing on the credit history of the owner. Small businesses are awarded credit limits based on their Paydex score, not the FICO score, which is used to determine individual dependability with these credit cards.
Paydex is a credit score developed by Dun Bradstreet that assesses the possibility of making timely payments to suppliers and customers. Higher scores indicate a greater predisposition for paying on time or ahead of schedule on a scale of 0 to 100.
A Paydex score of 80 or greater puts your company in the good risk category, suggesting that you have a minimal risk of late payments based on your payment history.
Dun Bradstreet is one of the major business credit reporting bureaus, alongside Equifax and Experian.
Does Every Business Need a Credit Card?
Any established business owner might theoretically apply for a business credit card. The ideal company for a business card, on the other hand, is one that:
- Has been in business for at least a year and has built supplier and customer relationships. Invoices and sales contracts must be created as a result of this. Before applying for a credit card, you'll need to calculate your receivables and payables.
- Has a proven track record of paying vendors on time? You must have a track record of ongoing, timely payments, not simply one or two major purchases or purchases paid from cash reserves, to be approved for corporate credit. Only then, as your business matures, would the bank be prepared to extend lines of credit to you, such as loans or mortgages.
Approval of a Business Credit Card?
Following your decision to apply for a business credit card, the next step is to choose which lender is best for your company.
Almost all banks that offer small company lines of credit will provide pre-qualification information once you complete their online application form, even if they don't approve applications right away.
The majority of businesses acquire loans in one of two ways: through sole proprietorships or corporations, or through limited liability corporations (LLCs).
Those who operate as sole proprietors must ensure that their credit is in good standing.
Furthermore, having a solid credit score makes it easier to qualify for a business credit card if your sole proprietorship is sold or transferred.
Business Credit Cards - When to Apply
If you meet all three criteria above, it's a good idea to start looking for small business credit cards even if your firm is still in its early stages.
Because most bureaus review new accounts every six months, completing your application on time will help ensure that your company does not miss out on future opportunities due to inaccurate or late data. This is particularly true when cash flow is tight during periods of fast expansion.
Having a credit line can provide you peace of mind and confidence as you take on larger clients and projects without worrying about running out of money.
Once you've been accepted, it's vital to maintain your company credit card account open and active. Make every effort to pay your payment in full each month and to increase your Paydex rating.
When Not to Apply
If you've been paying suppliers with cash or checks, don't apply for a small business credit card until you've established good payment history.
Many businesses make the error of entering uncharted territory too soon; they aren't yet eligible for an unprotected line of credit and are turned down because their overall financial situation is too bad.
Applying for corporate credit during a time of financial hardship is also a bad idea; there may be other options available to boost your loan line outside applying for new lines of credit.
Net 30 Accounts Offer Professional Guidance
Because the process of establishing business credit and registering for business credit cards differs so much from that of establishing personal credit, it may be useful to obtain professional guidance from someone who is acquainted with business credit.
Net 30 Accounts, a business credit building program, is the most effective technique for developing business credit and obtaining small business credit cards. They may assist you in setting up your Dun Bradstreet and Paydex accounts, developing beneficial company tradelines, and obtaining business credit approval.
To get started with this program, all you have to do is fill out an application and give us a call. If you're interested in learning more and getting started right away, I recommend going to net30accounts.com.
