strategies for building business credit

29 Jul 6 Strategies for Building Your Business Credit

It’s always essential to have strategies for building your business credit. Your credit is one of the biggest factors affecting whether your loan application will be approved. If financing is important to your business success, and more than 70% of entrepreneurs agree it is, your credit is a crucial element.

In many ways, your business credit is similar to your personal credit. It considers things like how much money you borrow, how promptly you pay it back, and how well you take care of your other financial obligations.

Because there’s so much shared DNA between the two scores, it’s not surprising that lenders will look at your personal score when you seek business financing. The logic is that if you have established a solid track record in your personal life, you’ll bring the same discipline and effectiveness to your business.

Here are several key factors lenders look at when considering whether to approve your loan request:

Personal credit: Includes payment history, amounts owed, and credit in use.
Personal debt coverage: Shows whether you could personally make loan payments if your business struggles.
Personal debt usage: Calculates how much of your available credit you’re utilizing.
Business debt coverage: Indicates your business’s financial health by considering your cash flow and debt payments.
Business debt usage: Compares your business debt with your assets and revenue to see if they’re in line with your industry.
Business revenue trend: Looks at revenue growth to see which direction your business appears to be heading.

As you probably noticed, many of these factors look at trends. And trends take time. This can make it challenging for new businesses that haven’t had a chance to establish a robust track record.

For both newer business owners and well-established entrepreneurs, it’s crucial to have a plan for building your business credit. Here are 6 proven strategies:

1. Incorporate: When you add LLC or Inc. to your business, you’re taking the first step toward establishing a business track record. Once you’ve filed the paperwork, your business will be legally separate from your personal financial credit history, meaning it has the chance to develop on its own. Sure, your personal credit will still factor in, but this allows your business to be viewed as an independent entity.

2. Get a business credit card: When you open a credit card account, you’ll do a couple of great things for your business. First, your payments on the card will be reported to credit reporting bureaus, which is an easy way to build credit. Also, if you get a card that offers rewards, you’ll be able to earn cash, miles, or other incentives for making purchases that you would’ve made anyway.

3. Make prompt payments: Every time you make a payment and fulfill a financial obligation, you’re adding another positive data point to your credit score. These add up over time, offering a compelling argument to lenders for why they should work with you. Consider paying your bills a little early, because it can sometimes help build your credit even faster than simply paying on the established due date.

4. Make automatic payments: While every small business owner plans to pay the bills consistently, it’s easy to forget these details when life gets hectic. Late and missed payments will always hurt your score. Eliminate the chance of that happening by signing up for automatic payments.

5. Look for errors: Never trust your credit in the hands of strangers. According to research, as many as one in five people have incorrect data in their reports that bring down their scores. Proactively monitor your reports with the three major bureaus and be sure to correct any mistakes you find.

6. Work with an expert: While there are plenty of strategies you can personally use to raise your business credit, it’s sometimes helpful to enlist the help of a credit counselor. These experts rely on their specialized training to help you build sustainable credit.

By applying these strategies, you’ll be able to build credit and open more possibilities for financing in the future. And if you’ve found yourself limited by credit issues in the past, that doesn’t necessarily mean you don’t have options. Here is a select group of financing products known for being more easily accessed, even with poor credit:

1. ACH loans
2. Business lines of credit
3. Merchant cash advances

Just remember that your business credit is your calling card when it comes to many business functions. Every step you take to strengthen your credit will pay dividends. The more proactive you can be, the better. Your credit score is being calculated daily, whether you like it or not. So always take the time to have a say in the matter.

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