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If you are starting a small business in today’s rough and tumble economy, you are probably going to need small business loans to get your business up and running. While this may sound daunting, especially if this is your first time, it is not a terribly difficult feat to do, as long as you understand the basics of building business credit.
Business credit works similarly to personal credit in that it builds a credit profile overtime and categorizes your business creditworthiness into a simple, comprehensive report that is easy for lenders to make judgments upon. The differences lie primarily in the criteria. While personal credit makes you eligible for large consumption loans like vehicles, vacations and houses, businesses have much larger requirements and thus are in need of greater financing. Accordingly, business lenders need to know more than whether a business is simply paying off its loans on time; they need to know whether the business is profitable and how long it can expect to last.
In order to first make yourself eligible for a business loan, you will need to incorporate or form a company of some sort. This allows you to separate your business credit from your personal credit, which is something that you as a business person will definitely need. Small business loans are only available, after all, to S-corps, C-corps and LLC’s. The business will need to be registered with the IRS and with one of the main credit reporting agencies, like Dun & Bradstreet or Experian.
With this in place, it is time to start building business credit. While this is largely accomplished through good business practice, you will also find it helpful to employ some personal credit building skills, such as paying off credit cards and conducting good transactions with merchants. This will help you build up a solid score when the time comes that you need small business loans.
While this is a complicated procedure, building business credit is an extraordinarily rewarding thing, as it will make you very eligible for useful loans later on in your business career.