Building business credit can help your company in a variety of ways. It can make obtaining specific types of financing, business insurance, or payment terms with suppliers easier or less expensive. It may even assist your company in acquiring lucrative business contracts.
In this article, we’ll go over how to build business credit in order to help your company grow.
1. Open a Business Bank Account
You should open a business bank account as soon as possible in order to establish business credit. A business bank account allows you to keep your personal and business finances separate. You’ll also be able to apply for business loans, merchant cash advances, and alternative lending products.
Your business credit score will increase if you use your business account to pay for business expenses such as utilities, commercial rent, and employee payroll. Strong business credit history will affect your business credit score positively if you use a dedicated bank account for your business finances and make on-time payments.
2. Get a Business Credit Card
Another way to keep your business and personal finances separate is to apply for a business credit card that is only for business-related purchases. This allows you to build your business credit score without dipping into your personal credit balance and negatively impacting your personal credit score. Purchase items for your business location, such as marketing materials or furniture, with a business credit card.
3. Set up Trade Lines with Suppliers
Establish trade lines (i.e. lines of credit) with your suppliers. Even if you start with low credit limits, developing these lines will allow you to build your business credit while also providing documented proof of your payment history.
Create trade lines with suppliers with whom you frequently rent equipment or purchase inventory. These trade lines require regular payments, which will improve your business credit score if you make payments on time. When you are successful with a few initial suppliers, you’ll have positive credit references to build upon with future suppliers.
4. Pay on Time or Early
Creating trade lines is only useful if you can pay on time. Make sure you have the procedures in place to pay your lenders and suppliers on time. Payments that are even just a few days late can damage your business credit report and lower your credit score. If you’re worried about meeting payment deadlines, identify any cash flow gaps that could affect your business.
5. Keep Track of Your Business Credit Score
Monitoring your business credit score is the best way to understand your business credit. You can do this by reviewing your TransUnion or Equifax business credit report. When you review your business credit report, you will be able to identify specific issues causing your score to fall, such as missed payments, outstanding balances, credit utilization, and current lawsuits on your profile. Knowing the exact details of your business credit report gives you specific items you can work on to improve your score.
Now that you know how important business credit is, you can take the necessary steps to improve it.