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Easy Steps To Establish A New Business
Establish a New Business in 4 Easy Steps
1. Set Up a Business Entity
There’s no such thing as a business loan or business credit for a sole proprietor — that’s a personal loan. In order to receive a business loan or investment, you must separate the business from its personal owners by setting up a legal business entity — a corporation or LLC, for example. Your CPA can advise you on the best legal structure for your particular situation, as your choice in entity can have some pretty significant tax implications.
2. Get a Tax ID Number (EIN)
Every business must have a tax ID number, just like each individual has a social security number. The Tax ID number (or EIN) is a nine-digit number assigned by the IRS to business entities operating in the U.S. You’ll use this number to open your business bank account and build your business credit profile. Apply for your business’ EIN online through the — and don’t worry, the process is fast and simple.
3. Establish a Business Bank Account
Your business needs at least one bank reference. Ideally, if you need to apply for a loan, your bank account will be at least two years old (of course, there’s not much you can do to change this situation other than apply for a business bank account as early as possible). More important than your account’s lifespan, your business bank account should show a cash flow capable of taking on a business debt. Of course, the optimum average daily balance of your account will depend on your type of business and the amount of financing you’ll be seeking.
4. Get Listed with the Business Credit Bureaus
Dun & Bradstreet is one of the main business credit bureaus and runs its own business credit score. D&B gives businesses a separate credit file number (known as a D&B or DUNS number) that rates your credit profile. Go to their site to find out if your business is already listed and has a score. You can also begin the process by applying for a free DUNS number once you’ve established your business entity and have your EIN. The number is how lenders will determine your business’ credit worthiness (most business credit card and lending companies will ask for your D&B number during the application process).