You understand the importance of a solid financial foundation to the success of your small business. You know what you have to do: obtain funding, put the cash to good use, and crush those goals. Problem is, you don’t have the capital to give your company that solid financial foundation it needs to thrive. Being a new business, how can lenders trust you enough to hand you as much cash as you request?
The answer? Establishing business trade lines and vendor credit!
Establishing business trade lines and vendor credit refers to creating credit relationships with suppliers, vendors, and creditors in order to access goods, services, and financing for your business. It involves building a credit history and reputation for your company separate from your personal credit, which can help establish your business’s creditworthiness and financial stability.
How do you establish these business trade lines and vendor credit?
1. Separate business and personal finances
To establish business trade lines and vendor credit effectively, you must separate your personal and business finances. Open a dedicated business bank account and obtain the necessary legal structure (such as an LLC or corporation) to ensure clear separation. This distinction not only demonstrates your commitment to professionalism but also protects your personal assets.
2. Obtain an employer identification number (EIN)
Obtaining an EIN is essential for building business credit, as it allows you to establish credit accounts and apply for trade lines under your business name.
3. Register Your business with business credit bureaus
To even begin building business credit, first register your company with business credit bureaus such as Dun & Bradstreet, Experian Business, or Equifax Small Business. This registration ensures that your business’s credit history is tracked and reported to potential creditors and vendors. So if you’ve been responsible with past payments, potential creditors will trust you.
4. Start with Net-30 vendor accounts
Net-30 vendor accounts are a great starting point for building business credit. These accounts allow you to purchase goods or services on credit with a 30-day payment term.
Research vendors in your industry that offer net-30 terms and apply for credit accounts with them. Make regular payments on time or even ahead of schedule to establish a positive payment history.
5. Build strong relationships with vendors
Developing strong relationships with vendors is pivotal for expanding your business trade lines and vendor credit. Communicate regularly, meet payment obligations promptly, and maintain a professional demeanor. This can lead to increased credit limits and more favorable terms.
6. Make timely payments
This one is a no-brainer. But you have to seek vendors who report payments to credit bureaus so that your good behavior will shine through for future lenders/vendors to see.
As you successfully manage your net-30 vendor accounts, gradually expand your trade lines by applying for additional credit accounts.
7. Explore business credit cards
Business credit cards can be valuable tools for establishing trade lines and building business credit. Look for credit card options that align with your needs and report to business credit bureaus. Use these cards responsibly, keeping balances low and paying off in full each month to boost your creditworthiness.
Final thoughts
While doing all of that, don’t forget to monitor your business credit reports to ensure accuracy – address any discrepancies promptly. Also, watch out for fraudulent activity on your card that may hurt your business credit.
If you wish to build reputable creditworthiness for your business, you have to start now. Every credit, every repayment, and every vendor counts.
