How (And Why) To Create A Corporate Credit Entity
For small business owners, growing and expanding is incredibly challenging. New concerns rear their heads every time your company gets bigger. Your business’s credit should be one of your primary concerns as you grow. As you continue to succeed, you’ll need to establish an independent corporate entity. This has a number of different benefits, but it’s particularly vital to build good credit.
Corporate Credit Entities Defined
The term “corporate entity” should suggest exactly what it describes. When your business becomes a corporate entity, it receives an existence separate from you and any partners you might have. Establishing a corporate entity usually means incorporating or forming an LLC; this will entitle your business to a federal Employer Identification Number. An EIN functions very much like a social security number, defining your business as a unique entity and creating a persistent record of its financial behavior. This is valuable in terms of building credit because an entity with an EIN is distinct from a business owner. While personal credit can be vital in a getting a business on its feet, you want to sever the ties between your own credit history and your business before it grows too large.
What You’ll Need To Establish An Entity
Forming a corporation of any sort is a fairly intensive process. While some online services promise to help you do it quickly and cheaply, it’s better to rely on assistance from professional accountants and attorneys that you already know. Your business is likely already at the size where long-term expertise in these fields is required – provided either by your own employees or by local professionals with whom you have long-term relationships. If it’s not there yet, your business will be there soon. Professionals will guide you through the entire process and make the costs and requirements clear to you.
In order to successfully establish a corporate entity, you need to meet some very modest requirements. To sum them up, your new entity needs to have its own contact information. You’ll need a physical address, (not a P.O box or a home address) a business phone number, and the EIN mentioned above. These days having a business email address from a business-based domain is also important. As you can probably already tell, the primary purpose of all of this information is to verify to potential creditors and vendors that your business in neither a sole proprietorship or operated out of your home. While creditors will often deal with businesses in these categories, they typically apply very different (and usually less advantageous) terms.
Using Corporate Entities Responsibly
Once your business has an independent identity of its own, it will begin developing a credit history just like an individual. This credit record is at least as important as your own consumer credit score, and you should safeguard it just as vigilantly. Apply for credit, (e.g. loans and corporate credit cards) make good use of the new financial resources you receive, and be diligent about meeting your repayment obligations. As you build up a good corporate credit history, you’re laying the groundwork for much larger deals in the future.
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