Building Business Credit as a Sole Proprietor

Sole proprietorships have their advantages. They are easy to set up. There are low costs and little paperwork involved. Plus, dissolving a sole proprietorship is pretty straightforward.

However, there’s one area where sole proprietorships struggle: money. Corporations and LLCs have a much easier time getting credit and loans. It’s more challenging for sole proprietorships because they don’t separate their personal identity from their business identity. Business income is considered personal income, so sole proprietorships have to deal with a lot of risks. This makes lenders wary of extending money to them.

However, it is possible to establish a business credit history. Keep in mind that regardless of the type of business you run, this usually doesn’t happen automatically. You need to be proactive and take specific steps. Here’s how to build a solid business credit rating.

Separate Your Business Identity

Make sure your business activities aren’t directly associated with your actual name. Have a unique business name as well as an employer identification number (EIN), which is a type of tax ID number used by small businesses. You’ll also want to open a business account and have a separate phone number.

Apply for Business Credit Cards

The key to a good credit profile is a track record of on-time payments. However, personal credit cards don’t build business credit, so you will want to do business with companies that will report to business credit agencies. When you make payments on time, this can help your business build business credit.

The good news is that most small business credit cards are available to sole proprietorships. Most credit issuers won’t require proof of business revenues or require you to be in business for a certain amount of time. That means you can use a business card to establish credit even if your business is new.

These cards often offer perks such as travel rewards or cash back. But you’ll want to check the interest rates if you plan to carry a balance.

Get Credit With Suppliers 

Build credit for your business by doing business with companies that will report payment history to business credit bureaus. Supplier credit accounts are often easy to get, as most vendors don’t check the owner’s personal credit history. Just be aware of the payment terms. You may get as long as 60 days to pay the invoice, or you may get just 30 or even 15.

Get a Small Business Loan 

Some small business loans will help you build business credit. These often come in the forms of lines of credit and equipment financing. Check to see whether the lender reports payment history to commercial credit. Then pay on time to build your credit.

Learn More About Sole Proprietorship 

A sole proprietorship is an easy type of business structure to set up and operate, but it can be challenging in some ways. Corporations and LLCs do offer more protection and creditor opportunities.

Make your business successful with help from Orlando sole proprietorship lawyer B.F. Godfrey from Godfrey Legal. Let’s discuss your corporate law concerns today. Schedule a consultation with our office by filling out the online form or calling (407) 890-0023.

Source:

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