Do You Receive Business Credit as an Incorporation?
Incorporating your business offers several benefits, including legal protection, credibility, and tax advantages. One of the key advantages is the ability to establish and receive business credit separate from your personal credit. In this post, we’ll explore what business credit is, how incorporating affects your ability to obtain it, and steps you can take to build and improve your business credit as an incorporated entity.
What Is Business Credit?
Business credit is the ability of a company to borrow money or access credit under its own name and credit profile, separate from the owner’s personal credit. Business credit is essential for several reasons:
Access to Capital: It allows businesses to obtain loans, lines of credit, and financing options.
Separation of Personal and Business Finances: Establishing business credit protects your personal assets and helps maintain a clear boundary between personal and business financial activities.
Better Terms and Rates: With strong business credit, companies can secure lower interest rates and more favorable loan terms.
When a business is incorporated (as a corporation or limited liability company, LLC), it becomes a separate legal entity from the owner, making it possible to establish business credit independent of personal credit history.
How Incorporating Your Business Affects Your Ability to Obtain Credit
When you incorporate your business, you establish it as a legal entity distinct from yourself. This separation offers protection against personal liability and also creates opportunities for building credit in the business’s name. Here’s how incorporating helps:
Establishes Legal and Financial Identity:
Incorporation provides your business with a legal identity and its own tax identification number (EIN). This serves as the business equivalent of a social security number and is necessary for opening bank accounts, applying for credit, and interacting with the IRS.Improves Credibility:
Lenders and creditors view incorporated businesses as more credible and stable than sole proprietorships. Incorporation signals that the business has a long-term plan and is committed to its industry, making lenders more likely to extend credit.Limits Liability and Risk:
Since an incorporated business is a separate legal entity, any debt it incurs does not directly impact the personal assets of the business owner. This distinction is essential for attracting larger lines of credit and loans, as lenders are willing to take on calculated risk when dealing with a legal entity rather than an individual.
Steps to Receive Business Credit as an Incorporated Entity
Receiving business credit as an incorporated entity requires a few key steps. Here’s a detailed guide:
1. Incorporate Your Business and Obtain an EIN
Ensure your business is legally incorporated as an LLC, S corporation, or C corporation. Each structure provides separate legal and financial status, which is essential for establishing business credit.
Apply for an Employer Identification Number (EIN) from the IRS. This number is required when opening business accounts or applying for credit in the business’s name.
2. Open a Business Bank Account
Set up a business bank account using your incorporation documents and EIN. This step helps establish a financial identity for your business and is crucial for separating personal and business finances.
Using a business account consistently for transactions and expenses builds your business’s financial history, which is a key factor when lenders assess your creditworthiness.
3. Register with Business Credit Bureaus
Register your business with credit bureaus such as Dun & Bradstreet (D&B), Experian Business, and Equifax Business. Obtaining a D-U-N-S number from D&B is particularly important, as many lenders and vendors use it to check a business’s credit profile.
Once registered, keep your information up to date to ensure that the business credit bureaus have accurate data when calculating your credit score.
4. Establish Trade Lines with Vendors and Suppliers
Start building credit by working with vendors and suppliers who report payment activity to business credit bureaus. By consistently paying invoices on time, you build a positive credit history, improving your business credit score.
Look for vendors offering net-30 accounts, which allow you to pay within 30 days and often report to credit agencies. Timely payments boost your business’s credit profile.
5. Apply for a Business Credit Card
Obtain a business credit card to manage expenses and build credit. Make sure the card reports activity to the business credit bureaus so that your payment history contributes to your credit profile.
Using the card responsibly by keeping balances low and making payments on time helps strengthen your business credit.
6. Monitor Your Business Credit Score Regularly
Just like personal credit, it’s important to monitor your business credit score regularly. This ensures that any inaccuracies are caught and corrected promptly.
Use services like Dun & Bradstreet’s CreditMonitor or Experian Business Credit Advantage to keep track of your score and get alerts about changes.
How a Business Can Make Money from Strong Business Credit
Establishing and maintaining good business credit can open multiple revenue opportunities and ways to save money:
Access to Larger Loans and Lines of Credit:
Strong business credit enables you to qualify for larger loans and credit lines, which can be used for expansion, equipment purchases, or covering operational expenses during slow periods.Lower Interest Rates:
Businesses with strong credit profiles often receive better interest rates on loans and credit cards. This reduces the cost of borrowing and allows businesses to retain more profit.Negotiating Better Terms with Vendors:
A good credit history makes your business more attractive to vendors, allowing you to negotiate favorable payment terms, bulk discounts, or extended net terms, which improves cash flow.Securing Partnerships and Contracts:
Companies with solid business credit are perceived as more stable and trustworthy, making it easier to attract partnerships and secure contracts that might be out of reach for businesses with no or poor credit history.
Why a Google Business Profile Is Good for SEO
SEO (Search Engine Optimization) is crucial for businesses looking to improve their online visibility and drive more traffic to their website. A Google Business Profile plays an essential role in local SEO, directly influencing how a business appears in local search results. Here’s why it’s a vital tool:
Local Search Ranking Signals: Google prioritizes businesses that provide accurate and detailed information on their profiles. Optimizing your profile can significantly increase your visibility, especially for local searches, by ensuring that your business shows up in the “Local Pack” (the list of businesses displayed at the top of search results alongside the map).
Customer Engagement Metrics: Google Business Profile tracks interactions, such as the number of views your profile gets, clicks on your website link, and calls made through your profile. These engagement metrics signal to Google that your business is relevant to searchers, improving your local ranking.
NAP Consistency: NAP (Name, Address, and Phone number) consistency is crucial for local SEO. Having an accurate and updated Google Business Profile ensures that your NAP information is consistent across all online platforms, boosting your local search rankings.
By leveraging these strategies, businesses can maximize their online visibility and engage with potential customers more effectively.
If you're interested in enhancing your business's online presence, explore more about how Google Business Profile can help your local SEO efforts.
