A line of credit is an agreement from a lender that allows a business to borrow money during a specified period of time on the promise that it will be paid back, usually in monthly payments. You will have a credit limit (the highest amount you can owe at any time during the period) based on your business credit history.[i] Your Business credit history also helps lenders determine your eligibility for loans, your interest rate, insurance premiums, credit limits from vendors and suppliers, and ability to raise money from various other investors such as venture capitalists.[ii]
To establish formal business credit (loans not from friends or family), you need to:
● Form an LLC (limited liability company)
● Get an Employer Identification Number (EIN) from the IRS if you have employees
o To apply for an EIN, go to the IRS website and submit an online application
● Open a business bank account using your business’s name
● Apply for a business credit card.
[i] How to establish business credit for the first time. U.S. Small Business Administration, n.d. https://www.sba.gov/blog/how-establish-business-credit-first-time . [ii] DeNicola, Louis. “What Is Business Credit, and How Can I Build It?” Credit Karma, November 15, 2021. https://www.creditkarma.com/advice/i/build-manage-small-business-credit .