A credit line is a crucial part of starting a company. In fact, a majority of companies will only survive if they have credit because of the limitations of the starting capital. But in order to get a line of credit you will have to apply for one with financial institutions.
Here, in one of o5.com’s recipes for life, we talk about how to start a credit line for your new company.
Establish a Good Credit Standing
An application for credit means one thing – your company’s credit report will need to be looked at by these institutions. Your company’s credit report will spell the difference between getting an approval or rejection for your application. What this means is quite simple – you need to establish a good credit standing for your company as early as possible.
Get an Employer Identification Number for your company
The Employer Identification Number of EIN is the business establishment equivalent of the Social Security number. Financial institutions will always ask for your EIN to review your credit standing. So get it as soon as you can.
Apply for smaller credits first
Don’t apply for a large amount of credit immediately. Gradually build your credit rating by applying for smaller credits first. A good example is to start with credit that will be used in items that are used often but is not too expensive like gasoline purchases and office supplies. When you have established a good reputation in handling this small credit you can apply for slightly bigger credit lines next time.
Use the company fund for paying company related items
This is another good way of establishing a good running credit. Because your company’s purchasing power is improving as time goes buy, you also increase the likelihood that you’ll be getting more offers for credit cards. This is not something that happens immediately. It will still take time but consider what you’re doing an investment for the future because it is just a matter of time before you get these offers. Just make sure that you always pay on time because delayed payments will reflect badly on your credit report and this will have a negative effect on your credit rating.
After a while, apply for bigger loans
If you need to, you can apply for bigger loans. This has two good effects, the infusion will help in the improvement of your business and managing the loan correctly will also help you establish a better credit rating. Examples of big loans include getting funds for buying real estate or a car. Just make sure that the loan will be used for something that will benefit the company and not you.
Do not use your personal money
There are some business owners who will use their own personal money to create a good credit rating for their company. Avoid doing this. Your personal money and your investments should always be separate. Doing so is very risky and could just create more headaches for you if something happens to your business and your personal money is tied up with the business.
Photo from thesmarterwallet.com