Every business should have a credit history and credit scores that are separate from business credit. It’ll be quicker to get a loan, credit card, or line of credit if you have good business credit. When you need to loan money to grow and manage your business, you can use these accounts.
More often than not, business owners who have poor personal credit may discover that their credit score is equally relevant because lenders may look at it before establishing a new account. However, it is best not to merge your personal and business funds, even ensure that the business thrives.
Failure to do so could mean losing your personal assets that can significantly affect your credit score. In the same way, if your personal credit score goes downhill, it can also affect your business credit score. So work on building, nurturing, and growing your company’s credit score as well to establish your company’s reputation.
Here’s everything you need to know to get you started:
How Business Credit Works
Unlike personal credit scores, there’s no specific standard or report from credit bureaus. The credit score is obtained by assessing several information sources that include an overall evaluation of the company’s performance, but there are three credit report-giving institutions today that the banks and lending companies highly trust.
For instance, Dun & Bradstreet or PayDex Business Credit Score analyzes the payment history and performance of D&B certified creditors. The Experian Business Credit Score also scores on trade and collection, public records, and demographics information.
Banks also look at the Equifax Small Business Credit Score that uses almost the same metrics as the previous two. Its creditors then use the detailed information it provides to develop its metrics for approving business loans.
Building and maintaining strong credit can allow you to access items like long and short-term business loans credit, credit cards, and equipment financing more readily.
How Crucial is Building Business Credit Score and Reports?
You need to list your business as an LLC (Limited Liability Company) or corporation and get a tax ID called FEIN (Federal Employer Identification Number).
When you’re duly registered, you can now open your business bank account and apply for your company credit card as well. To keep a good credit history with your suppliers and vendors, don’t exceed 30 days on your invoices and receivables. Be diligent in keeping your books updated monthly as well.
You can also opt to register your company with business directories online and offline to help boost marketing strategies for brand awareness.
Nurturing a Good Business Credit Improves Your Business Reputation
Starting your company’s credit score is one thing, and nurturing its growth is another. To maintain a good credit score, ensure that you are on time with your payables to establish a good track record.
Conduct proper tracking and managing of your business expenses, and ensure you don’t integrate your personal funds with your business funds at the get-go. Suppose you want to invest your own money into your own business. In that case, it must go through transparent transactions and paperwork to keep your business bookkeeping in check.
You should also find a way to pay your taxes on time and in advance, so you don’t get caught up cramming at the last minute. If you miss paying your taxes, it may be construed by the bank or lending company you are applying for a loan from that you have an unstable business.
Don’t be afraid to keep building your business credit with your suppliers and vendors because it shows your business’ financial management capacity.
Reputation is such an essential asset for you as a business owner. You should look at establishing your business credit parallel to establishing consumer and industry trust. Trust is something you cannot just buy or acquire overnight. You build it patiently with time, consistency, and resilience.
Building your credit score is also parallel to strategic financial management on your part. The success of your business depends on how you manage the resources you have now and in the future and maximize them for profitability and business success.
At Headstart Biz Solutions, we provide consultation and strategies on how to build business credit up to funding, tradelines, accounting and payroll, tax services, customer relationship management, online presence, lead generation, and more. Reach out to us today!