If you are a sole proprietor, you might think that getting business credit is impossible or unnecessary. After all, you are the only owner and operator of your business, and you might use your personal credit cards or loans to finance your expenses. However, there are many benefits of having a separate business credit profile, such as:
1. Protecting your personal credit score from the impact of your business debts or defaults
2. Building a positive reputation and trust with potential lenders, suppliers, and customers
3. Accessing better terms and rates for business financing and services
4. Separating your personal and business liabilities and assets
5. Taking advantage of tax deductions and benefits for business expenses
So how can you get business credit as a sole proprietor? Here are some steps you can follow to start building your business credit history and score.
Step 1: Establish Your Business Identity
The first step to getting business credit is to create a clear and distinct identity for your business. This means that you should:
1. Choose a unique and professional business name that reflects your products or services
2. Register your business name with your state or local government, if required
3. Obtain an Employer Identification Number (EIN) from the IRS, which is a nine-digit number that identifies your business for tax purposes
4. Open a business checking account at your local bank, using your EIN and business name
5. Get a dedicated business phone number and address, and list them in online directories and databases
These steps will help you separate your personal and business finances, and establish a credible presence for your business in the eyes of lenders and creditors.
Step 2: Register With Business Credit Bureaus
The next step to getting business credit is to register with the major business credit bureaus, such as Dun & Bradstreet, Equifax, and Experian. These are the agencies that collect and report information about your business credit activity, such as payment history, outstanding debts, credit utilization, and public records. They also assign you a business credit score, which is a numerical representation of your creditworthiness. To register with these bureaus, you will need to:
1. Apply for a D-U-N-S number from Dun & Bradstreet, which is a unique identifier for your business
2. Create an account with each bureau and provide basic information about your business, such as name, address, phone number, industry, revenue, etc.
3. Update your information regularly and monitor your reports for accuracy and completeness
4. By registering with these bureaus, you will make it easier for them to track and verify your business credit activity, and improve your chances of getting positive ratings and scores.
Step 3: Apply for Business Credit Cards
One of the easiest ways to get business credit as a sole proprietor is to apply for a business credit card. A business credit card is similar to a personal credit card, but it is designed for business use only. It allows you to make purchases and pay bills for your business expenses, and earn rewards or cash back on your spending. It also helps you build your business credit history and score by reporting your payment behavior to the credit bureaus. To apply for a business credit card as a sole proprietor, you will need:
1. Personal credit score
Business credit cards use your personal credit history to decide if you qualify. What qualifies as fair or excellent credit depends on the card’s requirements.
2. Business name
You can use your own name as your business name if you do not have a registered name.
3. EIN or Social Security number
You can use either one to apply for a business credit card as a sole proprietor.
4. Valid ID and proof of income
You will need to provide documents that verify your identity and income source.
There are many types of business credit cards available in the market, each with different features, benefits, fees, and interest rates. You should compare different options and choose the one that suits your needs and goals best. Some of the best business credit cards for sole proprietors are:
1. American Express Blue Business Cash Card
This card offers 2% cash back on up to $50,000 in purchases per year, no annual fee, 0% introductory APR for 12 months on purchases, and flexible payment options.
2. Capital One Spark Cash Select for Business
This card offers 1.5% cash back on every purchase, no annual fee, 0% introductory APR for 9 months on purchases, and free employee cards.
3. Chase Ink Business Unlimited Credit Card
This card offers $750 bonus cash back after spending $7,500 in the first 3 months, unlimited 1.5% cash back on every purchase, no annual fee, 0% introductory APR for 12 months on purchases, and free employee cards.
Step 4: Apply for Vendor Credit
Another way to get business credit as a sole proprietor is to apply for vendor credit. Vendor credit is a form of trade credit that allows you to buy goods or services from a supplier or vendor on net terms, such as net 30 or net 60 days. This means that you can receive the goods or services now and pay later within the agreed period. Vendor credit helps you conserve cash flow, manage inventory, and build relationships with suppliers. It also helps you build your business credit history and score by reporting your payment behavior to the credit bureaus. To apply for vendor credit as a sole proprietor, you will need:
1. D-U-N-S number
Most vendors require you to have a D-U-N-S number before they extend you any credit.
2. Good payment history
Vendors will check your payment history with other vendors or creditors before they approve you for any credit.
3. Purchase order or invoice
You will need to provide proof of purchase or service request when you apply for vendor credit.
There are many vendors that offer vendor credit to sole proprietors, such as:
Uline is a leading distributor of shipping, packing, and industrial supplies. It offers net 30 terms to qualified customers, and reports to Dun & Bradstreet.
Quill is an online retailer of office supplies, furniture, and technology products. It offers net 30 terms to qualified customers, and reports to Dun & Bradstreet.
Grainger is a leading supplier of maintenance, repair, and operations products. It offers net 30 terms to qualified customers, and reports to Dun & Bradstreet.
Step 5: Apply for Business Loans or Lines of Credit
The final step to getting business credit as a sole proprietor is to apply for business loans or lines of credit. These are forms of financing that provide you with access to funds that you can use for various purposes, such as working capital, equipment purchase, expansion, or emergency needs. They also help you build your business credit history and score by reporting your payment behavior to the credit bureaus. To apply for business loans or lines of credit as a sole proprietor, you will need:
1. Strong personal and business credit score
Lenders will check both your personal and business credit history to determine your eligibility and interest rate. The higher your scores are, the better your chances of approval and lower costs are.
2. Solid business plan
Lenders will want to see how you plan to use the funds, how you generate revenue, what are your expenses, and what are your goals. A well-written business plan will show them that you have a viable and profitable business idea.
3. A sufficient collateral or guarantee
Lenders may require you to pledge some assets or provide some guarantee as security for the loan or line of credit. This reduces their risk in case you default on the repayment. The collateral or guarantee can be personal or business property, such as real estate, equipment, inventory, or accounts receivable.
There are many types of business loans or lines of credit available in the market, each with different features, benefits, fees, and interest rates. You should compare different options and choose the one that suits your needs and goals best. Some of the best business loans or lines of credit for sole proprietors are:
Kabbage is an online lender that offers lines of credit up to $250,000 for small businesses. It has a simple application process, fast approval time, flexible repayment terms, and no origination fees. It reports to Dun & Bradstreet and Experian.
LendingClub is an online marketplace that connects borrowers with investors who fund their loans. It offers term loans up to $500,000 for small businesses. It has competitive interest rates, fixed monthly payments, no prepayment penalties, and low origination fees. It reports to Experian and Equifax.
OnDeck is an online lender that offers term loans up to $250,000 and lines of credit up to $100,000 for small businesses. It has an easy application process, quick funding time, customized repayment options, and transparent pricing. It reports to Experian and PayNet.
Getting business credit as a sole proprietor is not impossible or unnecessary. It can help you protect your personal credit, access better financing and services, separate your liabilities and assets, and take advantage of tax benefits. To get business credit as a sole proprietor, you need to follow these steps:
1. Establish your business identity
2. Register with business credit bureaus
3. Apply for business credit cards
4. Apply for vendor credit
5. Apply for business loans or lines of credit
By following these steps, you can start building your business credit history and score, and improve your chances of success and growth. If you need help with getting business credit or funding for your sole proprietorship, you can contact us at [email protected]. We are a professional and reliable company that offers business credit and funding services to small businesses. We can help you find the best solutions for your needs and goals, and guide you through the process.