When you’re in the business of selling big-ticket items like furniture, you will, in all likelihood, need credit. While you might be tempted to use your personal lines of credit, this can be a very risky strategy. If something goes awry, you could be on the hook for hundreds of thousands of dollars of debt—personally. It’s much smarter to use a business line of credit.
Which brings us to how to build credit for your ecommerce furniture store.
Become a Corporation
If you’re just starting out, one of the best early moves you can make is incorporating your business. If you operate as a sole proprietorship, or in partnership with another individual, your business is you in the eyes of the law. This means you’re personally responsible for all legal and financial ramifications of the operation of the store. Your credit history becomes the store’s credit history and more critically—vice versa. Everyone starts a business hoping for the best. But if the worst happens, your personal assets will be protected if you incorporate.
Get A Tax ID Number
It’s been said the only two inevitable aspects of life are death and taxes. The death of a business, with a bit of luck and strong management, can be staved off. Taxes—not so much. A Taxpayer ID Number (TIN) makes your business an entity in the eyes of the IRS. It is also one of the first things a lender is gong to want to see when you apply for credit. A TIN is also required to get a Dun and Bradstreet credit rating, which banks consider the gold standard.
Establish a Professional Presence
You’ll need to have a business address, phone number, credit file and checking account if you’re going to be taken seriously. In addition to establishing you as a professional entity, these elements give creditors a way to track you down if things go sideways. Always use the business checking account to cover the company’s financial obligations. Your business address and phone number should be on all of your documents, and listed in pertinent directories. Always keep your corporate records, state filings and business licenses up to date. Files should be opened with all three credit reporting agencies; Experian, Equifax and TransUnion.
Work With Your Suppliers
Plan to acquire office supplies, marketing materials and of course inventory when you’re considering how to start a furniture store online, Most vendors will provide these and give you from 30 to 60 days to pay for them. This helps you get what you need to get started and will simultaneously help you build credit for your ecommerce store. Managing these relationships carefully over time (paying your bills without being asked to do so) will give you the ability to demonstrate your creditworthiness to larger institutions. Experts recommend having at least five such vendor accounts in good standing before talking to banks.
Protect Your Credit Rating
Once established, a good credit rating is an invaluable tool. You’ll get better terms from vendors and suppliers, which will improve your profits. You’ll also be positioned to do more with less cash up front. When you apply for bank loans, you’ll qualify for lower interest rates. Yes, you’ll work hard to establish a strong credit rating for your store and it will take a bit of time to get it done. But once you have it, you’ll be in great shape. Now, while it should go without saying, we’ll say it anyway; having worked so hard to get it, do everything you can to protect it.