Establishing Your Business Identity
Applying for business credit is a complicated process. The following tips will help you present your business in the right way – and eventually get approved and on your way.
To be approved for business credit, banks and other financial institutions must be able to validate your status as a business. First, set up a corporation or LLC (Limited Liability Company), and complete all the necessary corporate conformity guidelines, such as verifications and licenses. The rules of forming a corporation vary by state, so be sure to do the proper research online.
Once you’ve set up your corporation or LLC, you must register with Dun & Bradstreet. D&B will assign your business a D&B D-U-N-S® number, which enables other companies to identify both your individual corporation and its associated corporate entities. You’ll also want to obtain a federal Employer Identification Number, open bank accounts in your legal business name, set up a dedicated business phone line, and list your phone number and business name in 411 listings. Failure to differentiate your business identity from your personal one could result in a denial of business credit.
Types of Business Credit
After you’ve established a clear business identity, you can apply for business credit such as business credit cards, lines of business credit, and loans. A business credit card is often the first step, since businesses may have to meet higher standards to secure lines of business credit and business loans. For example, a new business owner might have to present some kind of personal collateral to obtain a business line of credit. Loans are good options for large purchases, but are probably not a solution for everyday expenses.
Creating a Business Plan
Before you apply for business credit, develop a well-written business plan with clear goals – and how you plan to achieve them. (Business plans are especially important in securing loans from banks). The most essential element in your business plan is an explanation of how your business will make enough money to cover its expenses. To determine a realistic revenue estimate, research your intended market and competition. What does your competition lack? What percentage of the market do you expect to reach? How will you market to them? Your business plan should also define agreements between business partners and set a value on your business for legal purposes.