Business credit is indicative of your company’s ability to settle debts. If you take your credit history for granted, the chances of getting a future loan from your traditional lender may become slim. Every time you settle your debts, your credit score will be increased. This is ensured by the business credit bureaus, provided your creditors to report the payments.
A good score will establish trust for your business in the minds of your suppliers and lenders. Building your business credit will help your company to experience growth in the future.
Studies have revealed that it has become harder for small businesses to get financing from investors and traditional lenders in recent years. This has been a hindrance to their drive for expansion. Build your credit with the strategies discussed below.
Go for Small Loans
A good strategy you can adopt is to go for small loans that are easier to pay before moving on to the bigger ones. This will make potential creditors see as you a responsible businessperson.
Building Both Your Personal Credit Score and Business Credit Score
Having an excellent personal credit score does not mean that you will qualify for a bank loan. You also need to build your business score. Aim to get high scores for both credits. Some lenders may take both your personal credit score and business credit score into consideration.
Share Your Business ID
This entails letting lenders and credit reporting agencies know your business exists. They should have important information about your company such as the business name, address, contact information, and so on. Try to separate your personal ID from your business ID.
Securing Your EIN
Your employer identification number (EIN) should be secured from the IRS as soon as possible. Having it is necessary to build your business credit.
Opening a Business Bank Account
You should separate your personal bank account from your business bank account. Use your business ID while registering your account at your local bank.
Establishing Trade Lines
Business trade lines are like short-term credit agreements between suppliers and businesses. Ensure that the suppliers report your payments to credit bureaus so that your strategy will be effective. Even if your business is financially stable enough to operate without trade lines, you can still utilize this strategy to build your credit.
Obtaining a Line of Credit or Credit Card
A business credit card or line of credit should be used. If your on-going line of credit is well-managed, banks will get interested in making a deal with you. You also need a business credit card which will be different from your personal credit card.
Try to beat every payment deadline to maintain a high credit score. Missed payments will affect your score negatively. Do not let the fear of missed payment scare you away from applying for loans. Your creditor may decide to raise your credit limit as a reward for punctuality. With good business credit, you will have a higher chance of getting bigger loans.