Business credit is important to succeed in a small business as much as a personal credit is important for a successful personal credit record. Business credit profile is created when a business (lender) provides a credit to another and a trade or business credit is established. The information regarding the corporate credit is gathered by business credit bureaus like:
– Equifax Business
– Experian Business
– Business Credit USA
– Dun & Bradstreet
These bureaus use your Federal Tax Identification Number (FIN) or Employer Identification Number (EIN) that are obtained from IRS. The mode of operation of such bureaus is voluntary; in other words, unless the transactions are reported to the bureaus, they will not be recorded. It’s crucial that you work towards building a good corporate credit as it acts as a weighing parameter when you seek financial assistance. The credit scores in business range from 0 to 100. A score above 75 is considered strong.
There are more factors that affect your corporate credit than making payments regularly. Factors that contribute to our credit score are – line of credit in your credit cards and other accounts, period for which your credit has been active and also the number of inquiries that you make regarding your business to obtain your credit..
Consider the following steps important for building an impressive corporate credit:
Create a Unique Business Profile
The first step in building a business credit is making your business a separate entity. Small business is usually registered as a LLC. Major mistake that should be avoided at all costs is to avoid mixing your personal and business credit apart. The number of enquiries and credit obligations for personal and business credit differ, and trying to build your business credit with your personal credit profile could ruin your corporate credit history.
Have a Well Outlined Plan
The next step in building a commercial credit is to have a proper business plan. It’s necessary that all figures mentioned in the plan have specific reasons. Do not exclude any financial section or the minor details in your plan. Before starting the business, make sure you have all the necessary permits and licenses.
Requirements of Lenders and Credit Bureaus
It’s advisable to analyze what is expected from you before you set out to build your commercial credit. Learn what actions might have negative effect and what actions might help to add points to your business credit. However, do not take steps to build your credit if it is not relevant to your situation or if it does not aid the development of your business.
Make your Payments on Time
Obtaining necessary loans from reputed associations like SBA and making the payment regularly helps you build impressive business credit. Try and active automated payments for all your regular business related payments to avoid missed payments. If you miss a payment, try to talk to the concerned authorities to keep them from reporting by assuring regular payments in the future. Make sure you work with other businesses that are willing to help you build strong business credit. Try and establish relationship with those businesses that report to the bureaus.
Posses Required Number of Accounts
Be it credit cards or bank accounts, do not open more than necessary accounts within a short time to increase your points. A lot of credit enquiries within a short time can cause damage to your commercial credit.
Learn the art of Analyzing
Analyze where you stand among your competitors in the industry to determine if you are spending less or more than necessary on your business. Also, from time to time review your credit score and work on areas that need improvement. Keep your financial records up-do-date.