Corporate credit works just like personal credit. If you have personal credit, you can borrow money from an institution or buy goods or services, and you agree to pay for it at a later date. Similarly, corporate credit is a contract or agreement between a corporation and a lender or credit institution. The corporation acquires items of value (e.g., goods, services, loans, raw materials) and pays for them later. This article will explain the steps that you can take to obtain corporate credit.
In personal credit, the individual person enters into an agreement with a credit institution. In corporate credit, the business entity enters into an agreement with a credit institution or vendor. Regardless of size, any business today will need at least some kind of corporate credit for the business to operate. One common form of corporate credit is the agreement for later payment of received goods. Another is the ability to pay balances over a longer period. If you own your business, you will want to have corporate credit so that you can avail of these privileges. Another important reason for you to want to have corporate credit is the protection that it gives to your personal credit line. Corporate credit shields your personal credit line from liability, as well as enables you to get leases and loans needed by your business to operate.
- The first thing that you need to do to get corporate credit is to incorporate. That is, form a corporation. You might want to create an LLC (limited liability corporation).
- Register for an FEIN or Federal Employer Identification Number, sales tax number, and state ID number. Obtain the necessary permits and licenses required for the conduct of your business.
- Find a reliable bank and open a bank account for your corporation. You will use corporate funds set aside particularly for this bank account.
- Register for a DUNS (Data Universal Numbering System) number. This nine-digit number is your business entity’s unique identifier in the Dun and Bradstreet database. It will usually take you about one week to register for a DUNS number.
- Since your corporation is newly formed, you will have a blank slate in terms of credit reputation. Your goal is to improve your corporation’s credit reputation. The better your reputation, the more the credit companies will trust your corporation with bigger credit amounts. Look for “friendly” creditors both online and offline. Such institutions usually have more willingness to help out newly born corporations. Each time you apply for a loan from one of these companies, always read the terms and conditions of the loan carefully. You can’t possibly get a really huge loan immediately, since your credit reputation is still being built. Gradually increase your reputation by starting with small loans. Always repay the loans on or before the payment due date. Then, you can gradually increase your loan amounts as your credit reputation goes higher.
Just as in personal credit, corporate credit relies on trustworthiness and reliability. In obtaining corporate credit, you now know that your business entity needs good credit reputation for it to be able to obtain good corporate credit from lending companies.