The What, Why and How on Business Credit
Business loans can be used to help put long thought out finance expansion plans into action or to help cover costs that need immediate attention. The need to access business credit for financial aid can be a headache, but a strong business credit profile will give your business a head start, with better terms and faster approval.
This article will help simplify the process and give you some tips on how to establish business credit that will help position your business in a favorable position to access a hassle-free loan when the time comes.
Let’s first discuss what business credit is.
Just like people, businesses have credit reports that determine whether or not they are qualified for financing. Credit information, like debt payments, are collected by business credit bureaus to make up each business credit report. Creditors, lenders, suppliers, and insurance companies will use this report to make decisions. By establishing business credit, you are building a strong foundation for your company to grow steadily in the future.
Why should you establish business credit?
Establishing business credit will significantly benefit your business as a whole and is certainly something to consider if you have plans to expand. Here is a list of advantages on establishing and building business credit:
- Good business credit will open up the ability to secure funds with better interest rates. It can also help negotiate trade terms that work better in your favor with industry suppliers. This procedure allows businesses to save money and allow more access to funds.
- A low business credit score will mean a higher chance that loan applications will be denied, hindering the growth of a business.
- Small, new businesses will most likely use a personal guarantee when applying for loans. By establishing business credit, the owners will not need to use their credit score for business purposes. It helps keep things professional and avoids overlapping finances.
Here are some tips in establishing business credit:
- Sort out the basics. You need to establish your business and make sure it can be run independently, which includes a business phone number, bank account, and business credit file.
- Work with vendors and suppliers that report payments and build up a good working relationship.
- Pay your bills on time, every time. This dedication is a golden rule. Late payment records will bring down your credit score and show that you are unreliable.
- Draw a line between personal and business. Apply for a business credit card, get incorporated, and separate expenses.
- Apply for a Federal Tax Identification or EIN for your business
How to build secure business credit:
Now that you have established business credit, here are ways to build it. These coincidently make great habits to keep your business in tip-top shape. We have already emphasized paying your bills on time. But in some cases, by paying your bills early, you can give your credit score a boost with extra credit. Keep up to speed with account reporting with business credit agencies. It is also advised to use more than one agency to check your reports and scores to ensure you are doing all that you can to keep those scores high.