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It’s no secret that finding right financing is essential to the health of your small business. There’s plenty of capital available — lenders are sitting on a record amount of cash — but do the terms make sense for you? If you’re not in love with the business financing deals you’ve been offered, taking care of your business credit health should be first and foremost on your mind.
Let’s look at four fundamental principles that will help you both establish a business credit report and raise your business credit score.
1. Separate your business and personal finances.
Ideally, business owners will want to incorporate their business. However, even sole proprietors should get an employer identification number (EIN) and register their business with state and/or local agencies, and obtain proper business licenses.
Always consult with a tax advisor before changing your business’ legal structure. Small business owners should also get a business bank account and credit card, rather than a personal one. Once you’ve established a business line of credit, try to avoid dipping into your personal finances to subsidize your business. Keep the two separate so you don’t have to put your personal credit on the line every time you’re applying for a business loan.
2. Establish business credit accounts.
Establishing a business credit history requires accounts that report payment history to commercial credit agencies like Dun & Bradstreet and Experian. As a small business owner, obtaining a business credit card is an easy first step, since the decision is often based on the owner’s personal credit and finances.
According to a Manta and Nav survey, more than two-thirds of small business owners don’t have a dedicated business credit line, so that’s