How to Get Commercial Credit With an LLC or an S Corp

Businesses need commercial credit to help with cash flow.

A limited liability company (LLC) and an S corporation are each considered to be an independent entity that exists separate from its owners. Both have the status of legal persons under the law. They can own property, sue or be sued, pay taxes and enter into contracts in their own names. Like a regular person, an independent entity can establish a credit profile by starting with small credit accounts in the name of the business. A credit rating is assigned to the company by credit profiler Dun & Bradstreet. This corporation is the main entity that provides credit reports for businesses to help them obtain commercial credit.

Instructions

1. Maintain the business registration for your LLC or S corporation in good standing with your home state. File articles of organization for an LLC or articles of incorporation for an S corporation with the secretary of state's office to obtain authority to conduct business in state. Complete all state annual filings and pay assessments and taxes on time to maintain the company's registration in good standing. Request a certificate of good standing from the state for the year by submitting a request form from the business section of the secretary of state's website. Creditors often expect a business to provide proof that the business is properly registered with the state and not in default on any obligation before they will extend commercial credit.

2. Open a business bank account. A business banking relationship is the primary proof of stability that commercial creditors request. Develop a solid relationship with your bank representative. If your business operates on a cash basis, deposit income into the bank before spending it to prove cash flow. Keep a positive balance in all accounts. Do not bounce checks or regularly generate fees by overdrawing accounts. File all account statements with your business records. Creditors will often ask to see at least six months of bank statements before making a credit decision.

3. Maintain a business telephone number. To establish an official credit file, a business will often need a business phone number that is listed in the phone book. Obtain a phone line in the business name, even if it is only a second line in a home office.

4. Develop professional business references. Most creditors require two or three business references on a credit application. Use the representative at the bank where your business maintains its accounts as the first reference. Cultivate other business references from your operating accounts, such as the company that rents your business equipment or your cell phone service provider.

5. Apply for a D-U-N-S number. This number is issued by Dun & Bradstreet and establishes your credit file. About 18 months after a number is issued to your business, it will have an official file that creditors can check when making a decision to extend credit. Go to the Dun & Bradstreet website (dandb.com) and fill out an online application.

6. Start with small credit amounts. Apply for the most accessible credit to establish a positive payment history. Usually, your bank will extend a small business credit card and a small line of credit if the business owner's personal credit is good. Check with the U.S. Small Business Administration about its guarantee programs that make it easier for new businesses to acquire loans. Identify local loan programs with flexible credit terms to promote business development. Apply for small amounts of credit when your business has a positive cash flow and does not need the money.

7. Use a business owner as a guarantor. An owner's personal guarantee can ensure a loan to the business and is often needed for larger extensions of credit when the business is still in its start-up stages. Try to avoid personally guaranteeing business debt but do so if it is the only viable option.

References

• SBA.gov: Getting a D-U-N-S Number
• "Entrepreneur": The ABCs of Business Credit; David Gass; March 2005
• "The Wall Street Journal": Three Best Ways to Build Business Credit; Raymund Flandez; October 2009
• U.S. Better Business Bureau: Applying for Business Credit
• The Federal Reserve Bank of New York: The Credit Process -- A Guide For Small Business Owners

Resources

• Dun & Bradstreet Credibility Corp.: Why Your Business Needs a DUNS Number
• U.S. Better Business Bureau: Help and Advice on Small Business Credit
• SBA.gov: Managing Your Business Credit
• SBA.gov: Starting & Managing a Business
• FindLaw.com: Forming and Operating a Small Business