While “expand my business” or “hire my first employee” are certainly on your list of resolutions as a small business owner, I’m betting “establish business credit” didn’t make the cut. That’s a shame because focusing on your company credit can actually assist you in achieving your other objectives!
Lenders, investors, and credit card companies all consider your business credit when considering whether or not to give you money or invest in your firm. You’ll be more qualified for some sort of financing if your business credit is good. It may also assist you in obtaining better rates and possibly securing profitable business opportunities.
Make it a mission this year to improve your business credit if it is weak or nonexistent.
Month 1: Check if you have a business credit report
Find out if major corporate credit reporting bureaus have your company on their radar. There are three major commercial credit bureaus in the United States:
Experian Dun & Bradstreet
Equifax
If you can’t find a credit report with these organisations, it’s possible that you haven’t yet acquired accounts that are reported to them.
Month 2: Check your credit scores
If none of the credit reporting agencies has a report for your business, skip this step and come back to it after you’ve completed the other steps in a few months.
However, if you demonstrate that you have a business credit report with various agencies, you may discover that you have many business credit ratings; each bureau can construct its own score for your company.
The problematic part is that your score will differ from one to the next because each has its own scoring algorithm and because not every lender or credit card firm reports to the same organisations.
If you have a small company credit card, for example, Experian may disclose your monthly payments but not the other two. Because you never know which reports or scores lenders will look at, keeping track of your scores from all three major bureaus is a good idea.
Month 3: Review vendor reporting
It becomes more difficult (not really). You probably have accounts with vendors or suppliers that allow you to pay on net-30 terms, for example. Some companies disclose payments to business credit bureaus, while others do not. Because no company is obligated to report to credit bureaus, your decades of on-time payments at the office supply store down the street may have had no impact on your credit score.
To begin, find out if the vendors with whom you do business report to credit bureaus. You may see this by looking at your business credit report. In certain ways, yes. Due to the fact that business credit reports do not contain the names of the companies that they report on, you may have to guess which is which based on account information.
Consider switching to vendors who do report to credit agencies if yours don’t. The first stage in building your credit history is to open trade lines with vendors who offer you payment terms like a net 30 account and report your payments to credit bureaus. As you make on-time payments on your obligations, your credit history and scores will improve.
Month 4: Clean up your report
There aren’t usually inconsistencies on your business credit reports, but they do happen. Perhaps you closed a company credit card three months ago, but it still appears on your credit record as open. Worse yet, accounts from a different company may appear on your report.
It’s critical to keep an eye on your business credit report on a frequent basis to verify it’s accurate. If it isn’t, the websites below will instruct you on how to report errors:
- Dun & Bradstreet
- Equifax
- Experian
Month 5: Apply for a business credit card
Rather than using your personal credit card for company costs, it’s a good idea to have a separate credit card. It will not only assist you in building your business credit over time, but it will also make tax filing simpler.
Look for a card with characteristics that are essential to you, such as:
- There is no annual charge.
- Rewarding (travel or cashback)
- The interest rate that is low
- Controls on employee cards
Remember: if you pay your credit card payments on time and in full when you can, you’ll likely continue to improve your credit.
Month 6: Pay balances in full
Obviously, this should be a monthly habit, but if you’ve only been paying the minimum due on your company credit cards (if you have any), start working toward paying off the entire total each month before the due date. This will not only aid in the development of your business credit, but it will also help you cut or perhaps eliminate those annoying interest costs.
If you can’t afford to pay off your debts in full, think about where you’re spending money and see if you can cut back to match your budget better.
Next steps to build business credit
If you decide to apply for a small business loan or line of credit after completing this journey, you should be in a good position to qualify. As a result, you may be able to expand into larger office space, purchase more products to fulfil rising client demand or hire additional employees.
Even if you aren’t ready for funding, you are in a terrific position. Before opting to do business with you, some potential clients (especially B2Bs) will verify your business credit. You’ll get the job if they acquire a good credit report!
In any case, keep an eye on those business credit scores so they can expand alongside your company.
