Building a business from the ground up is challenging work. You’ll have to find funding through investors or loans, think of a business plan, and more. As if those things aren’t hard enough, they’re just half the battle. Before you even begin doing services and manufacturing products, you must build business credit first.
Like your personal credit, business credit signifies how your business is financially trustworthy. That said, having good business credit is vital if you want additional funding through business loans. Not only that, but your business credit can also influence your relationship with different vendors.
Business credit is an essential financial tool for your company. It’s used to help you qualify for finances from different sources like banks, lenders like CreditNinja in California, investors, etc. It’s a tool that you can use to create beneficial relationships with vendors and other individuals and businesses in the same industry. It’s mainly used as a bargaining chip or a negotiating tool for finances.
That said, your primary goal with your business credit is to make it as good as possible. Neglecting it by not paying your monthly dues on business loans, not doing what you promised to investors, etc., can be a considerable risk to your business.
But what if you’re just building your business credit for a new company? Here are some tips to help you establish good business credit quickly and easily.
The first step to building business credit is establishing your business as a separate legal entity. You should first create a legal name, set up a business contact information, and categorize it as a sole proprietorship, partnership, corporation, etc. Once the essential legal aspect of your business is set up, you can create accounts with vendors that report to credit bureaus so that your business credit file is created.
Doing so will help you separate your finances from your business finances. Also, by doing this, the credit history that you’ll be making will be intended for your business credit, which will begin slowly.
It’s important to note that most lenders would look at your business credit to see if you’re eligible for a business loan. Most banks and lenders nowadays have specific business loans for startups, and for your business to get that, you will need a business bank account.
You may already have some of these relationships established even before creating your own business. You can use this relationship to get a small amount of credit that you can use to start your business.
They would usually give you credit because they want to keep you as a customer. Just be sure that the establishments you get credit from have a report from credit bureaus; hence your payment history will be incuded in your business credit. Not all establishments do this, especially since reporting is voluntary.
If you don’t want to establish multiple lines of credit, an alternative is to open a business credit card. Just ensure these credit cards are tied to your business and not your finances. Usually, it’s recommended to create two of them.
And as usual, you have to ensure that your credit card issuer reports to credit bureaus. Not only that, but most business credit card issuers nowadays have travel points or cash-back features that you can use to reinvest in your business.
Of course, even if you’re already building business credit, it won’t matter if you’re not diligently paying your monthly bills on time. Always pay on time so that you don’t have any setbacks on your credit. Not paying on time is like taking a step forward and two steps backward.
You could also build your business credit faster by paying multiple times a month before the bank or lender reports to the credit bureaus. Usually, most establishments report at the end of the month. So you can repay the loan twice earlier in the month and more than the minimum. This way, when they report to the credit bureaus, the debt is significantly reduced, adding more points to your business credit.
Building a business from the ground up is difficult, but that’s just half the battle. You have to keep it afloat, and sometimes, the finances can be dire for a new business, so you have to build credit as soon as possible. By building credit immediately, you’ll have no trouble getting qualified for loans if your business has problems with its cash flow.