Ways To Build Your Small-Business Credit
By TLB Contributing Financial Author: Martin
Establishing a business reputation can be tough, especially when it comes to securing loans and other types of financing. To do that, you’ll need to establish your business credit that is separate from your personal credit history.
A separate business credit allows you to minimize any negative effects of a poor personal credit history on your business, or vice versa. Should you have a few dark chapters in your personal credit history, for example, having a separate business credit will insulate your business from being negatively affected by those mistakes. It works in reverse, too: should your business fall on hard times, your personal assets and credit won’t be at risk if your business and personal credit stories are separate and if your company ownership is separate from you as a person.
So, how do you go about building your business credit? That’s the great part! There are several ways in which you can build up your business credit. Of course, it’s always wise to check the rules and requirements for your particular jurisdiction, but these are general guidelines you can use.
Incorporate your business
In some business arrangements, such as general partnerships and sole proprietorships, the business and the owner are legally the same thing; there is no separation of your business credit history from your personal one. When you incorporate or form a limited liability corporation, you as the owner become legally separate and apart from your business. Therefore, what happens in the credit history of one does not affect the credit of the other.
Open a business bank account
Once you have a legal business name, your next best course of action for building your business credit is to open a business bank account in the business name. Once open, always pay your business financial transactions from the funds in that account. Always pay off your business credit card from this account as well. The more separate you can keep your business financial dealings from your personal ones, the more you’ll be able to build up your business credit.
Get a business credit card and open a business credit file
Be sure that all the major business credit reporting agencies have a file on your business, not just on you as a person. In addition, be sure you obtain and use at least one business credit card that is not personally linked to you or any of your business partners. For maximum impact, choose a business credit card that is issued by a company that reports to the credit reporting agencies, so you can build up your credit as time goes on.
Create a business phone number
This can either be a business land-line located in your physical place of business, or a cell phone number used only as your business number, it’s important to create a separate number for your business, in the business name. Always use that number in all of your directory submissions, advertising, etc. so that it becomes the number with which people will associate your business.
Establish a line of credit
When you work with vendors for your business, arrange to set up a line of credit with them. As you make purchases and are able to make the payments, you’ll not only build a rapport with them, but you’ll also make positive strides where your business credit is concerned, too. Be sure to ask them to report your payment behaviors to the reporting agencies so that this, too, can go toward building your credit. Always pay your bills on time. Just as with your personal credit, late payments on your business accounts will negatively impact your credit
There are many benefits to having good business credit. To start, if you have good business credit, you’ll likely be eligible for more favourable payment terms from vendors, reducing the likelihood that you’ll have to prepay for products. You’ll also potentially qualify for better credit terms and lower interest rates when dealing with banks and other lenders.
One final word: Once you have established your good business credit, do everything you can to protect it. Pay your bills on time, make more than the minimum payments, establish good lines of credit with vendors, etc.
Other articles by Martin:
Click on the image below to visit TLB Project on twitter …