Ask anyone who is self-employed and they will tell you about the challenges they have faced. While the struggle to find customers is a constant theme, another issue faced by almost every owner is how to build credit for their business. According to the Federal Reserve nearly 45% of small business owners have been denied credit. Even when these business owners can get the funding they need, it is often with strings attached, such as higher interest rates. To make sure you don’t end up paying more, here are four ways to build great credit for your business.
Know Your Score
While everyone should know their credit score, it is even more important for business owners as they not only need to manage their personal credit but also the scores for their company. This means that business owners need to make sure their company is registered with the firms such as Experian, Dun & Bradstreet, and Equifax. Even though all three companies track business credit scores the use different information to compile a picture of the creditworthiness of your business.
For example, Dun & Bradstreet’s iUpdate lets business owners enter and update information about their company. This includes basic information such as the number of employees, financial statements, and even years in operation. According to experts on business credit, a more complete and up-to-date a profile usually works to the benefit of businesses seeking to build their credit.
This brings up another point about knowing your score. This is a great opportunity to make sure the report of our business does not include any erroneous information. In some cases, it could be data which was mistakenly entered on a company, or it could be a payment which has already been made but was reported as late. To sum up, just knowing is not enough when building your business credit, you also need to act to make sure it accurately represents your company.
Not only is this the simplest and easiest form of credit for small businesses, but you can use your history of paying vendors on time to your advantage. Remember many banks, finance companies, even some credit card companies will ask for trade references. These are references from banks, suppliers, utilities, your landlord, and other companies to which your business makes regular payments.
Assuming you have a good payment history with your supplier, then you should ask them to submit a reference to the commercial credit bureaus. You may have to ask, as many suppliers are not in the habit of updating this information. A quick reminder can go a long way and it is something you should consider especially with the suppliers who make up most your costs.
Pay on Time
No big secret with this one. However, the Small Business Administration estimates more than 70% of small businesses run into credit issues at one time or another. The best way to stay out of credit jail is to not overextend yourself or your business. This means not taking on more debt that you can service, and most importantly making sure that you make your payments on time. An added bonus of paying your bills on time is that vendors will be more likely to give a positive reference when they are contacted by potential lenders.
Establish Business Credit Early
Many business owners think they can coast on the personal credit alone. While this approach can work in the very early days of starting a business, it will take its toll over time. Part of the challenge is that businesses tend to be heavy users of credit. As such, every business owner should set up separate credit lines for their company very early. Think about it. Why would you register a business and then rely on your personal credit to run that business?
Building great credit for your business can help you get lower interest loans and better offers for business credit cards. In addition, a solid history of on-time payments with your vendors will help you to get better terms, discounts, or even special considerations down the road. Remember to check your scores regularly with each of the three commercial credit bureaus mentioned above and make sure that all information if accurate and up-to-date.