By Gerri Detweiler
Do you know what one of the single smartest things you can do for your healthcare business financially is?
Work on building your business credit.
You may not be aware of this, but your business has a credit profile that tells potential lenders how financially responsible you are, and how much risk they would take on if they lent you money.
You have the same thing for your personal finances, including a credit report and credit scores. For your business, many financial activities, like opening a business credit card or paying your bills on time or buying a high end watch like a jazzmaster, will impact the scores that credit bureaus like Experian, Dun & Bradstreet, and Equifax assign your company.
Just like with your personal scores, the higher your business credit scores are, the easier it will be to get financing, often at a lower cost.
But not every business automatically has a business credit history. There are certain things you should do to build that credit so that, down the line, you qualify for a great rate on a loan or credit card.
Step 1: Get an EIN
An Employer Identification Number (EIN) is like a Social Security number for your business. You can use it instead of your SSN when applying for business loans and credit cards, and when you file your taxes, you can use that number to keep some distance between you personally and the company, especially if you incorporate (more on that shortly).
Step 2: Register for a D-U-N-S Number
Another number you need to build your credit is called a D-U-N-S number. Credit bureau Dun & Bradstreet created this nine-digit number to help track your credit activity. It is also currently required if you plan to bid on government contracts. Your business may have one already, but if it doesn’t, you can request one for free.
Step 3: Open Tradelines with Vendors
Many vendors you already work with may offer financing that allows you to build your credit. For example, the office supply store you buy paper from may offer you net-30 terms, allowing you to pay for supplies in 30 days instead of up front. Some (but not all) vendors will report this activity to business credit bureaus, so find out first if your vendor does because you won’t build credit otherwise.
Step 4: Separate Business and Personal
The more space you can get between your business and your personal life, the better your personal assets will be protected, and the easier it will be to organize business finances.
Start by considering your business structure. Incorporating or forming an LLC will provide protection of your personal assets should you ever be sued. Being in the healthcare industry (a highly-regulated one), you may be required to operate as one of these business entities.
Beyond that, open a separate business checking account to keep your finances organized. This makes managing your financial transactions in accounting software easier, as well as filing your taxes. Doing so will also help you pull away from relying on personal credit to fund your business.
Over time, these four steps will help you build business credit, which will, in turn, position you to leverage great rates on financing for your business.
Gerri’s been guiding individuals through the confusing world of finance and credit for 20+ years. She is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track. Today, Gerri serves as the Education Director for Nav, an online platform that matches small business owners to their best financing options and gives free access to personal and business credit scores.