4 Things You Need to Know in Establishing Credit As an Entrepreneur

Are you an entrepreneur planning to launch a business? There’s a couple of things you’ll want to consider in establishing your company’s business credit. The amount of debt you owe impacts a lot of decisions you’ll make as a start-up like whether to get an office, hire someone long term, or even whether you can qualify for business loans. And since cash flow and planning for growth is like a magic formula you’re always trying to figure out you may need to have some business credit to keep things moving efficiently. Thankfully, I still had a full-time job when I launched the Niche Parent. It helped relieve the stress most new companies go through. But that’s not the case for everyone.

At some point you may need to borrow money or apply for credit to keep things going.  If so, here are a few things you’ll want to keep in mind.

1.  Build credit before you need it. Don’t wait until that rainy day happens.  Open up a major credit card. If your company is young, you likely won’t get much of a credit limit. Whatever the number is, use the credit card each month and pay it off. Then after six months or longer, request a credit increase.  If you’re needed a line of credit or  a loan from a bank, it’s unlikely you’ll get it if you’re business has less than two years of revenue to show.
2. Student Loans. If you borrowed money for college, it can really backfire on your future life as an entrepreneur. When I was in law school the idea of owning my own firm or business definitely crossed my mind. But who knew I would actually have the guts to be self employed one day? Even though most start-ups happen a few years after graduating, student loans represent the single largest debt burden for people under 40.  This debt can make it challenging to pursue your entrepreneurial dreams.
3. Your personal credit score. Keep a close watch on your credit score.  Identity theft, left payments, defaulting on loans can cause you to lose even 100 points quickly. Get your free annual report every year (your birthday perhaps). Sign-up for a monitoring service in case something goes wrong. Be careful about checking your credit too often as this can result in hard inquiries which can also impact your score. Instead, do soft inquiries using a company like Credit Karma every couple of months.  Also, don’t rush to close credit cards you don’t use. This can have a major negative impact on your credit score.
4. EIN number and business formation. Set up a business entity and get your company an EIN number. Your EIN is like a business social security number and will be used for your W-9s, business bank account, and of course, establishing credit. Your EIN will go a long way to helping you  establish credit.