How Business Credit Actually Works

We all look at credit scores to keep our personal finances in order, but how do you do this for a business? Business credit is an incredibly important aspect of running any business, especially a small business. But how does business credit actually work, and how does it differ from a normal credit report? Personal and Business Credit Reports: What’s The Difference? What is business credit? It is a credit report that is in many ways similar to a personal credit report: it is a document that notes how you handle money and helps lenders estimate the likelihood that you will pay back a loan. Simply put, it measures how good you are with money. However, there are some notable differences. Aside from the fact that an individual’s finances and a business’s finances can differ, you’ll also have to pay attention to different credit agencies. For personal credit reports, TransUnion and Equifax are the standard providers of reports, but for a business it would be wise to pay attention to Dun & Bradstreet, Experian Business, Equifax Business, and Business Credit USA. Both businesses and individuals should care about their credit scores for one simple reason—having a good credit score means being able to easily open additional lines of credit, notably when applying for credit cards or loans. How to Establish Business Credit There are a variety of ways to establish business credit, many of which are similar to ways that one might establish personal credit. Here are a few examples: Incorporate your business. This means moving away from a sole proprietorship, where the business and the owner are effectively the same thing as far as taxes and legality is concerned. Creating a separate entity (like an LLC) is definitely the responsible thing to do. Obtain a federal tax identification number (EIN). Open a business bank account. Establish a business phone number. Open a business credit file with all three business reporting agencies: Experian, Equifax, and TransUnion. Obtain business credit cards to build lines of credit. You can also establish a line of credit directly with vendors or suppliers. Pay your bills on time! This follows the same logic as with personal credit. Show that you can pay off your lines of credit, and your loans and your standing will improve. Related posts: Red Flags When Purchasing a Business Misleading Small Business Legal Advice to Avoid How to Peacefully and Legally End a Business...

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Red Flags When Purchasing a Business

Purchasing a business is no easy task. It is a process that requires a great deal of research, contemplation, and lots and lots of paperwork! With so many forms to be signed and assets switching hands, there’s opportunity for mistakes that could really hurt you if left undiscovered. Check out this handy list of red flags to look for when purchasing a business! Wacky Lease Agreement If you’re taking over a brick and mortar location (and you’re renting), you will either have to assume the previous lease from the old business owner, or you will have to negotiate a new lease agreement with the landowner. There may be unwanted fees and restrictions for terminating a lease early, so be sure to do your homework to make sure that you can get what you want at a fair price! Sales Tax or Liquor License Issues Is the business a restaurant or a retail location? If so, you’ll want to look into procuring a liquor license (if applicable) and looking into any potential sales tax debts. For restaurants specifically, only purchasing the assets of a business does not protect you from any previously existing sales tax debts—be careful! The Books Look Cooked This is one of the largest red flags you can see when looking into a business to purchase. You don’t want to get yourself into a legal quagmire by purchasing a business with a lack of records or records that look like they have been tampered with. Stay away! Taxes Aren’t Up-To-Date Outstanding taxes are less troubling than cooked books, but they will still cause you a lot of trouble. The trouble associated with getting your new business’s taxes and records up-to-date effectively increases the cost of purchase. Ask yourself: is it worth the trouble? Equipment and Special Regulations If your business uses specialized materials, heavy machinery, or any other type of technology that requires a great deal of expertise to handle, then you will be subject to additional safety regulations in order to operate. While you are shopping around, be sure to have an industry specialist check into these regulations for you to ensure you aren’t missing anything. Beyond the legal restrictions that you’ll have to comply with, be sure to check that any specialized machinery is in relatively good working order—a costly upgrade might turn your purchase a money pit! Related posts: How Business Credit Actually Works How to Peacefully and Legally End a Business Partnership Misleading Small Business Legal Advice to...

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How to Peacefully and Legally End a Business Partnership

Ending a business partnership can be incredibly difficult, especially if you started a business with a friend or family member. During such a trying and emotional time, it is especially important to ensure that you are crossing your Ts and dotting you Is. How to End Your Business Partnership Dissolving a business partnership is governed by state law, so you should check your state’s website for information about their exact process and which forms you’ll need to fill out. It commonly takes 90 days from filing a statement of dissolution to the actual dissolving of the partnership. The purpose of the forms is to make sure that neither party is saddled with the debts or responsibilities of the other party. If you didn’t have an agreement with your business partner, try to work one out for yourself. If that doesn’t work, then finding a moderator would be a great idea. No taxes are required to specifically end a business partnership, but account for business-owned property that has appreciated in value and for payment of business and employer taxes. To learn more about the nitty-gritty of the process, click here. Helpful Tips Be sure to get everything in writing, and don’t be afraid to lean on your contract. You want things to be official, and you don’t want to get stuck without a deal. If this happens, you’ll have to do a lot more work. In general, be kind and generous, yet as reasonable as possible. Most importantly, keep your emotions out of it! You and/or your former business partner are likely emotional at this point, and it is important that you don’t let your feelings (whether remorse or hatred) to cloud your judgment or get in the way of doing the right thing. Define what your mutually desired outcomes are, and try to reach a happy compromise. Hire an attorney! Even if you feel like you know what you are doing, consider hiring an attorney that specializes in business partnership dissolution just to be sure that you are doing everything right. Related posts: How Business Credit Actually Works Red Flags When Purchasing a Business Misleading Small Business Legal Advice to...

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Finding the Best Cheap/Free Legal Advice For Your Business

If you’re a small business owner and you have one simple legal question, going to a lawyer and paying for a consultation might seem a bit like overkill. For those in such a situation, there are many online resources that provide very cheap (or sometimes completely free!) legal advice, so that you can forego a price and unnecessary appointment with a lawyer. Next, let’s explore some of the best resources available on the web! You can get a free trial or pay for a real account on Rocket Lawyer. They make any type of law need very easy because they have a variety of experts on staff to help you with your needs. You can look up anything from NDAs to contracts and corporate agreements and so much more. com has a section specifically for small business owners looking for legal advice. You can learn about starting a business, partnerships, franchises, trade regulations, and nearly anything else you’d want to know! Nolo dates back to 1971 when it began as the Nolo Press, selling DIY legal books. On their website, you’ll find a great deal of free legal advice—especially advice related to business! You can use Avvo as a Q&A forum to get some solid legal advice. If that doesn’t get you what you need, you can pay a flat fee of $39 to talk to a real lawyer through Avvo. This is a cheap and easy alternative to scheduling a meeting with a lawyer! LegalZoom has a business legal plan that you can sign up for starting at $24/month. At that price, you can ask legal questions, get advice on specific scenarios and situations, have an attorney reviewed your business documents and contracts, and much more! If you need regular legal advice, you should consider trying LegalZoom first as a long-term option. Click here to learn about more resources where you can receive cheap or free legal advice for your business! Related posts: Misleading Small Business Legal Advice to Avoid How Free Legal Advice Helps Startups, State, Everyone How Marketers Can Avoid Legal Trouble 5 Legal Podcasts Worth Tuning In...

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