Establishing and maintaining business accounts.
If you manage a small business, access to credit may be an essential ingredient to help your business thrive. Credit allows your business to buy products and services, a convenience that may not be readily available with cash. Credit can also fill in the gaps, providing funds needed when receivables are lagging or cash flow is erratic.
Establishing credit for your small business can be accomplished fairly easily. Read on for the steps to acquire and maintain business credit today.
1. Tax identification. When establishing small business credit you’ll want to open your accounts with a federal tax identification number, not your Social Security Number. By using an Employer Identification Number, you can ensure that this debt or liability is charged to your business account, not your personal account, an important tax and liability distinction your accountant can discuss with you. Obtain your 9-digit EIN from the IRS and use it for your business.
2. Types of credit. Small businesses can benefit from a variety of credit options including lines of credit and credit cards from banks. Also consider loans from family or friends, grants from local governments or organizations, and microlenders. Likely, you’ll need to submit a business plan with your loan application, a move necessary to expedite the processing of your credit application.
3. Credit importance. Establishing credit will allow your business to differentiate itself from your personal account. You’ll begin to build a credit history, a necessary step in building your business. In fact, other businesses may want to see your business credit file before doing business with you, just as a creditor will review your consumer credit file too.
4. Considerations. As with any line of credit, your judicial use of these funds is important. Borrow only as much as you need and plan to pay off your debt as soon as possible to avoid accumulating debt and paying interest. Pay your debt on time, to avoid fees. Never overdraw your account, a move that can result in fees and harm your credit. If you need more credit, you can ask your creditor to raise its credit line.
The rules for business and consumer credit cards and accounts are different. Understand the requirements of securing and maintaining small business credit, and choose an account that you can manage online. Finally, keep close track of your expenditures as some items can serve as tax deductions.
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