Establish Business Trade Lines for Your Corporation and Why

So you have successfully set up a corporation and are ready to see your business explode as its own, separate entity.  What is the next step?  How do you establish your business and prove its creditworthiness so that you can qualify for loans when you need them?  You need to focus on establishing business trade lines for your corporation in order to prove that you are a good risk to potential lenders down the road.

What is a trade line for your business?  Trade lines on your credit report are basically unique credit relationships.  These can be complicated, like the mortgage on your business’s property, or they can be simple, like the line of credit extended to you by your venders and suppliers.  The point is that they are reported on your credit history.

When establishing business trade lines it is important to inquire as to whether or not the lender or creditor reports to the business credit bureaus.  There are three business credit bureaus: Experian, Equifax, and Dun & Bradstreet.  It is very important that the creditors you choose when establishing these tradelines are reporting to all three of the agencies.  They are not required to report to any of them, and some only report to one of the bureaus, usually Dun & Bradstreet.  Having a tradeline established with a business that does not report has no effect on your business’s credit history.

How many trade lines do you need?  That depends on what types of tradelines they are.  You should aim to get five trade lines on your business’s credit history, and these should be varied.  Business credit cards, loans, and venders are all examples of tradelines you could use.  Credit cards and venders are the most likely source to use when your corporation is young, as it is difficult to get a business loan when you have no business credit history.

Why are trade lines so important?  First, they allow you to apply for loans.  With several trade lines showing on your history for several months, you look like a good risk to a potential lender.  Without these trade lines, you will find it difficult to apply for credit, no matter how well structured your business is.

Another reason that trade lines are important is that they allow you to separate your personal finances from your business finances.  Once you have established some credit history, you can effectively make your business a separate entity from your own finances.  This protects you from being held legally and financially responsible for financial mistakes your business makes.  Again, tradelines are the key to getting to this point.

It is important to note that business credit histories are hard to change.  For this reason it is crucial for all new businesses, no matter how young they are, to pay attention to tradelines from the beginning.  Ignoring your tradelines in the beginning may make it difficult to improve your credit history in the future.  When you have bills, pay them on time, and early if you can.  This will help you establish a favorable credit history that will carry your business to a successful financial future.