Excellent business credit fuels success in a number of ways. First, it qualifies you to take out a business line of credit and loans, both of which even out the fluctuations of small business income. Start-ups, with their uncertain cash flows, can be particularly dependent on lines of credit. When you build business credit, inevitable slow periods lose their sting.
Secondly, having a strong business credit score reassures prospects and customers. Savvy consumers of your business can access your business credit information easily online. Many, particularly if they are businesses themselves, explore vendors’ (your) integrity via credit score before choosing to do business with you. As Dun & Bradstreet director of sales and partnerships Ann Colley explains, the business credit score “is not just about finances. It’s about your credibility.”
Business credit scores have their own set of rules. While (like the personal credit score) the business score depends on credit utilization, however, business size and industry type also figure into the calculation. Some businesses are in industries with high returns or waning demand, making them riskier to lend to. Lenders figure those aspects into their decisions to lend at all and, if so, at what rate. While you can get a business loan with bad personal credit, lenders offer better rates to those with strong personal and business credit.
Here are five tips to help you build business credit, thus helping your operation thrive.
1. Make your business official
Having a business incorporated and licensed is especially important if you have a fresh or start-up business. Be sure to get your official federal tax identification number (EIN). You also need to create a bank account/credit card in your official company’s name from which to should draw for company expenses. These steps convince lenders you have a legitimate business that functions daily.
2. Pay off all outstanding/overdue amounts to creditors immediately
If your payments are frequently late, your credit score will suffer. Credit bureaus always factor in your history of paying off creditors, so try not to have any delinquent payments. Just for you perfectionists: the credit bureau Dun & Bradstreet won’t ever assign a perfect Paydex score unless all payments are consistently early.
3. Maintain an excellent trade line credit relationship with your vendors
No matter what necessary supplies you purchase or even lease for your business, those suppliers are valuable for maintaining excellent credit. Many third party vendors are willing to extend their trade credit, allowing you to pay off bills over an extended length of time after delivery of supplies. You can then request that these vendors report these trade agreement payments to business credit bureaus, which will in turn boost up your credit score. (Dun & Bradstreet requires businesses to show at least three trade lines for their Paydex score).
4. When borrowing money, use lenders that report to business credit bureaus
Be sure to ask potential business lenders if they report to business credit bureaus before you even consider taking out a loan with them. If they do, then your timely payments will build your business credit score.
5. Make sure your business history record looks good
Did you know your business credit report not only shows your history of paying off creditors, but also displays any public records that may have been filed in your company’s name? This includes liens, bankruptcies, and any court ruling judgements. Therefore, if you have unpaid business taxes or any outstanding business loans on your credit report, your credit score will be impacted. To offset this, be sure to pay off any amounts owed as soon as possible (many of these negative marks will remain on your business credit report for 7-10 years!).
LendSpark Has the Loan Instruments to Help You Build Business Credit
Keep in mind that while big banks reject 75% of business loan applicants, alternative lenders like LendSpark exist to help small and mid-market business capture opportunities in front of them. After arranging $200 million in alternative loans to a wide range of business in the past three years, LendSpark has helped hundreds of businesses hammer out a positive cash flow and stay in business. We’ve even arranged business loans for people with bad personal credit. They find the bad credit business loan is the first step to becoming solvent and working their way to good credit.To stay current on the trends in small business borrowing, sign up for our email newsletter or connect with us on on LinkedIn, Facebook or Twitter.