7 Ways To Establish Small Business Credit
It has been proposed that less than 10 percent of businesses are able to raise funds for expansion or diversification from banks and commercial lenders.
The reason is obvious – These businesses have a poor credit history and no there is no guarantee that they can fulfil the credit terms.
Having good business credit can provide a number of benefits, including positioning your company for more favorable payment terms and allowing you to obtain better interest rates and credit terms from lenders.
Startups need to convince creditors and investors that they’re taking a worthwhile risk.
And the best proof of reliability is having a good business credit score.
Table of Contents
Ways To Establish Small Business Credit
1) Put Your Business On The Map
As an entrepreneur of a small business, you need to understand that you cannot effectively establish credit until your business is established.
Establishing your business should not be confused with opening your doors for business.
Therefore, should your business be already operating but have not yet established your business as a separate entity from you as an individual you should do so by doing the following:
⇒ Obtain an EIN which is the number for federal tax identification.
⇒ Get your business’ telephone number and have it listed in your local directory. Most lenders will be interested in knowing whether you’re open for business.
⇒ Open a bank account in your business name; use the account to transact all money matters pertaining to the business because lenders will obviously check your bank account rating
2) Create & Maintain Good Supplier Relationships
Maintaining a healthy relationship with your suppliers is valuable to your business.
Solid relationships will ensure that your business is able to access credit from your suppliers without having to prepay for your supplies.
Again, these suppliers will be useful in verifying your good credit payment history to business credit bureaus.
The suppliers should provide that information voluntarily and they are not required to send it in.
3) Prompt Payments Always
Ensure that you pay all your bills whenever they become due.
A good credit history serves as proof that you’re a reliable person who can be trusted to meet their credit obligations in a timely manner.
A tendency to delay payments is likely to damage your business profile in the eyes of potential creditors.
To be on the safe side, you should be paying your business bills at least a day before the day they become due.
4) Open a Credit Card for Your Business
Get a credit card associated with your business and not to you personally.
Opening this line of credit with a reputable company that reports to the major business bureaus is a very effective way to establish credit.
To caution you, though, just because credit is available should not prompt to use it without strategic planning. because at the end of the day it is money your small business will be required to pay.
It isn’t free money.
5) Get Your Business Incorporated
Add this to your to-do list if you’re just starting out, or your business is already in operation, but you’re not yet incorporated.
When you add Inc or LCC to your business you will have legally separated self from your business and therefore your personal credit history will not affect your business credit profile.
6) Monitor Your Credit
Statistics show that 25% of small business entrepreneurs have reported some significant errors on their credit reports.
That means you should exercise due diligence when dealing with the reporting agencies to avoid cases of being given an inaccurate credit score.
Should you notice any discrepancies, you’re advised to file a dispute with the particular reporting agency.
7) Check With D-U-N-S
Check With D-U-N-S to See Whether a Number Has Been Allocated to You.
After your business has been legally established, follow up to see if it has been listed with Dun and Bradstreet.
Dun & Bradstreet Inc. is an American business services company that helps reduce credit risk by providing insight for businesses.
In conclusion,
Starting a business requires start-up capital, and creditors need to be persuaded that they’re taking a worthwhile risk.
Are you creditworthy?