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How to Build and Maintain Corporate Credit

April 20, 2020

Corporations do not normally have glistening credit scores from the start. In fact, building corporate credit is most of the time a long process of proving financial responsibility of the corporation. Do not wait for your corporation to be in dire financial need to apply for credit but rather apply for credit even when you do not need it. Lenders favor financially stable companies when considering who to lend to. Outlined below are some items that you can do that will help you build corporate credit.

1. Incorporate your Business

The first thing that you should do is register your business as a corporation.

As a business owner, you have a variety of entity structures to choose from and it is best for you to discuss this with your accountants and/or attorneys as to which corporate structure works best for your business.

Once a structure is decided, then you will need to apply for your Employer Identification Number (EIN) also known as form SS-4 with the Internal Revenue Service. Ultimately it is the EIN that is used when establishing and maintaining corporate credit.

2. Maintain a Good Personal Credit Score

The initial stages, lenders will heavily weight the personal credit scores of business owners when making their credit decisions. It is imperative that you have a good personal score as this will improve your chances of getting funded. To boost your personal credit score make sure you keep your credit card spending under 30% of your limit, pay all your bills on time, and minimize your applications for new credit. Moreover, lenders will also check personal credits of partners or investors with more than 20% stake in the business, so it is important you plan for this accordingly.

3. Apply for Credit Even if you Don’t Need it

A good fundamental strategy is to apply for credit as a corporation shortly after forming even if you do not need it at that point in time. Keeping in mind that lenders are usually wary of lending out huge sums of money to startups, it is recommended you apply to borrow smaller amounts at the beginning. In addition, you should also apply for commercial credit accounts from major retailers such as Home Depot or OfficeMax. All in all, this should give your corporate credit a boost.

4. Frequent Use of Credit Cards and Lines of Credit

One common mistake that most business owners make is that they apply for a line of credit, get approved but end up not using it because they are wanting to avoid paying interest. Consistent use of your lines of credit will help you build excellent corporate credit. It also goes without saying that your payments to the creditors should be made in a timely manner.

5. Build Relationships With More Than One Lender

Remember the saying “don’t put all your eggs in one basket?” Well, the same saying applies here. Don’t rely on a single lender to build your credit score; banks can change their lending policies overnight, cutting your credit limit overnight. You might instead choose to have a credit line through a credit union or a locally-owned bank and have a credit card through a major bank. Using a variety of lenders means you can constantly build and vary your credit history.

6. Work With A Company To Establish Your Business Credit

There are companies that specialize in helping businesses and corporations alike to build corporate credit. As an added benefit, these companies utilize preexisting relationships and offer your company credit without personal guarantees. More so, these companies know the ins and outs of establishing corporate credit and will attempt to lead you in the right path by outlining the necessary steps that it will take for you to build up your corporate credit. It is highly recommended that you research which company will fit your current needs and to use one established in the most critical stages which is at the startup phase when your entity has no credit at all.