Posted 08.16.2010

Establishing business credit: part 2

The seven steps to success

By Keith McAslan

(Editor's note: This is the second of two parts. Read part 1.)

Here are the seven steps critical to establishing business credit:

1. Company Legal Structure - The business must be a legal entity unto itself in order to establish business credit. Therefore, it is recommended to form a corporation (C Corp) or LLC (discuss with your CPA the advantage/disadvantages of a C Corp versus LLC) as opposed to structuring your business as a sole proprietorship or partnership. Formation of a sole proprietorship or partnership, dictates that personal credit information could be included on the business credit report. Additionally, as a sole proprietor or partner in a partnership, you are personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLC's, on the other hand, provide the business owners liability protection, and can build a business credit profile that's separate from the personal credit profile. Therefore, apply for credit under your business's name and find businesses will to grant credit without a personal credit check or guarantee.
Remember - obtain an FIN or EIN from the IRS at the www.irs.gov

2. Register with Business Credit Agencies - The best known business credit bureau is Dun & Bradstreet (www.dnb.com). Dun & Bradstreet has a process on their web site to establish a D-U-N-S number (a specific 9 digit number related to your business) and instructions how to establish a business credit rating. It is strongly recommended that you contact D&B and follow their process to establish business credit. The following is from the D&B web site:

How do I get started with D&B? With our unsurpassed global data collection system, D&B continually gathers the data that initiates the creation of business credit profiles on new companies. Many kinds of activities can trigger a profile on a new company, such as incorporating your business, applying for a loan, getting a business telephone number, taking out a lease on office space - even just when another company seeks information from D&B about your business.

Still, a new business may not have a complete business credit profile. Getting a D-U-N-S Number from D&B - the worldwide standard for business classification systems - is an essential part of helping you establish your business credit profile and will ensure that when a company looks you up in the D&B database they will find you. In some cases, a D&B D-U-N-S Number is so a requirement for doing business some entities, such as the US government.

• Page 1
• Page 2