With revolving business credit lines, you have a set credit limit which enables you to make charges up to that limit. You have the option to either pay your balance in full or carry a balance (revolve the debt) and make a payment. Most business credit cards are a type of revolving credit for a company which you can get either unsecured or secured.

With charge credit, your company also has a set credit limit but the main difference is that you have to pay the total balance in full each month. This prevents your company from accumulating debt since you are unable to revolve debt.
Installment credit – With this type of business credit a lender loans your company a set amount of funds and you agree to repay that amount and interest in a regular monthly installment with a fixed payment for a set length of time. A business loan and commercial auto loan are typical examples of installment credit.
Service credit – Any agreements your company has with service providers are all credit arrangements. You receive internet service, cell phone service, web hosting, etc., with the agreement that your company will pay for the service every month. Keep in mind not all service credit accounts are reported to the business credit reporting agencies such as Dun & Bradstreet.

Trade credit which is also known as vendor credit or supplier credit is when a business allows your company to buy products or services up to a set credit limit and pay for the total outstanding amount on the invoice within 10, 15, 30 or 60 days depending on the agreed upon net terms.

Business credit is necessary if you plan to use credit to make daily or major purchases for your business, such as marketing expenses, travel costs, equipment or inventory, or you want to be able to take advantage of the convenience that credit provides. It’s also important to realize that business credit goes beyond just purchasing power, in that your company’s creditworthiness plays a crucial role in future funding opportunities.

Business credit, like personal credit, is what you should build before your company actually needs it. The fact is your business may need access to credit to cover unforeseen expenses so it’s best to plan ahead and start the business credit building process now.

The first step in establishing credit in your company’s name is to structure your business as a separate legal entity. If you haven’t filed the paperwork then you’ll need to do that before anything else.

Next, you’ll need to obtain your business tax identification number also known as a federal tax identification number (FIN) or an employer identification number (EIN). Once you’ve done this, you can open a business checking account in your company’s name using the EIN number.

Remember, business credit is not only about getting access to financing; it has become the driving force for setting terms on business lines of credit, business loans, insurance premiums, lease payments, and trade credit. With a strong business credit profile, you can receive more favorable rates and terms giving your company optimal use of its funding ability.

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