Strong business credit is an invaluable tool for many types of businesses. Like any other vital business resource (partnerships, equipment, etc) it requires a great deal of attention and nurturing. Once you have accepted that business credit can be particularly helpful for your business, it automatically becomes a priority. Since today’s business world demands everything to be done at a faster pace, modern business leaders are currently encouraged to begin building business credit as early as possible. Several fundamentals of business credit are very similar to those of personal credit, such as making payments on time. But when it comes to establishing and raising business credit, there’s a new set of rules to be followed.
Here are three ways to build business credit as a new business leader:
You don’t need to be registered as a limited liability company (LLC) or corporation to have a business credit profile. This can be done by establishing your business as a sole proprietorship or partnership as well. But becoming an LLC or corporation makes it much easier to build business credit and protect your personal credit score from serious damage. Your business’s debt is no longer tied directly to your own personal credit score, so you can take on significantly more debt.
Businesses are expected to have substantial debt, whereas putting this much debt onto your personal credit would almost certainly cause your credit score to plummet. No one can get away with having such large outstanding balances on their personal credit score.
Registering your business as an LLC or corporation also spares your personal credit score from harm in the event of an unforeseen crisis. If you were suddenly unable to pay your bills, it would be your business credit, not your personal credit score, that would take the hit. This is extremely advantageous because a logistical response to such an event is taking out a small business loan. Getting approved for the amount of money you need will likely be much harder with a very low personal credit score.
In several industries, an essential requirement for success is strong business partnerships. Retailers and restaurateurs, for example, must make a conscious effort to maintain relationships with their suppliers. This is a lot easier when you know which suppliers are worth your precious time and energy. One trait to look for is whether or not the business reports transactions to the major credit bureaus: Experian, Equifax, and Dunn & Bradstreet. Paying your suppliers on time is a great initial step to building a business credit profile. You’d think that any reputable supplier would report your transactions but unfortunately this is not the case.
So, before committing to a partnership, make sure your potential supplier voluntarily reports your payment history and therefore helps you build business credit with every timely payment. The suppliers that do this will likely offer additional rewards for timely payments, such as longer credit terms (60-90 days).
Another ingredient for strong business credit is a mix of credit lines or debt. This could include a business credit card, lines of credit with suppliers, and a business line of credit from a business financing institution. You could also take out a small-sized business loan with short terms that is easy to pay off. This is only recommended, however, if there is an actual purpose for the business loan. Paying off additional debt is difficult when you aren’t doing anything to increase revenue. And just like the aforementioned suppliers, you must make sure the business financing institution you work with fulfills a number of requirements.
First, keep in mind that some business financing institutions do not report your payment history for certain products. There also might not be a high likelihood that paying off a small-sized business loan will make you eligible for a second, larger round of funding. This just happens to be one of the main advantages of working with a company like United Capital Source. Once a new client has established that he or she can pay off debt without destabilizing cash flow, the business leader should have no trouble being approved for another business loan with increasingly convenient terms.
Building a business credit profile is a monumental step in the small business journey. It shows that the business leader has officially separated his or her personal finances from the business’s finances and is ultimately ready to manage greater amounts of money. The better you are at improving business credit, the better you’ll get at improving other important numbers related to your business’s overall reputation. You just have to keep following the right guidelines, no matter how hectic your work life may be.
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