Whether your business is starting out or has been established for years, having good credit is essential to getting a loan or business credit card. However, it’s not the only reason to build your business credit score. Attracting major customers, obtaining financing from suppliers, and having the ability to quickly finance important purchases at a lower interest rate may all depend on your credit score.
When your business credit score is superb, you can negotiate lower rates from suppliers and banks and credit cards. But building strong business credit takes work.
These are some tips to build your business credit from a “no” to a “yes” at the bank.
- Your business is a separate entity. Sole proprietorships and general partnerships are legally the same as the owner, and therefore, there can be no business credit filing. Incorporate your business in order to separate it from your personal records.
Once incorporated, obtain a federal tax identification number (EIN) and a business bank account.
Creating a business address, phone number, website, and email address is an important step to take in order to establish your business as separate from your personal life. If you need to maintain a separate business number on a limited budget, services such as Google Voice are available to establish a business telephone number without a separate phone line.
- Make sure your business is seen in the right places. Register your business with major credit reporting agencies. Go to each company’s website and register with your EIN: Dun & Bradstreet, Experian and Equifax are the most well-known.
Registering with credit agencies allows credit reporters, such as suppliers, banks, and credit cards, to find you and report your good progress. To have a good reputation, people must say good things about you. To have a good credit rating, lenders and suppliers must report your good behavior.
- Build business credit as you go. Building a fabulous business credit rating, like building a reputation, may take months or years. As soon as your business hits the ground running, build your credit score by borrowing money.
One of the quickest and easiest ways to do this is to obtain either a line of credit or wholesaler fronting from suppliers. Your supplier ships your order, and you pay on an agreed-upon date. Keep your suppliers happy by nurturing the relationship.
Of course, paying invoices on time is key, but also, make sure those suppliers who offer you credit are first on your list to call when ordering.
You can obtain a business credit card or a small business loan. By building credit into your business plan from the start, your credit rating will be stellar when you need it. Remember to make payments on time every time.
- Get personal. You have incorporated, but your personal credit rating still counts when looking for financing. Build your personal credit by paying bills on time and paying off bad debts.
If you have no credit or bad credit, you can build good credit again by applying for a secured credit card, or getting a cosigner on a small loan. You may qualify for a credit-builder loan. These small loans remain at the lending institution, but you make regular, on-time payments to build your credit. Once paid, you receive the loan.
- Be vigilant. Maintain accurate information from all three major business credit reporting firms. Review your business and personal credit information regularly and correct any misinformation immediately. Verify that creditors are reporting to all agencies regularly.
- Keep your records in order. Maintain your tax records, payment records, billing records in pristine condition. If you’re not good at paperwork, hire someone to help. Your business paperwork must be accurate, current, and readily available when you are in need of it for a loan application or presentation to a potential investor.
- Know your business. Knowing your own business inside and out will allow you to make the best decisions about its’ future and its’ financial condition.
In short, good credit is good business, and your business credit acumen is as important to your business as your ability to provide the service or products that you offer. There’s nothing as frustrating as having a new idea or an invoice to fill, and no money to be able to implement. With a strong financial base and a good business credit rating, you’ll be able to navigate through a loan or credit offer with ease and confidence.