“BE PROACTIVE”
by Contributor
(Jul. 13, 2020) — Almost all seasoned entrepreneurs understand how important a good credit background and rating is. Every company needs one, so that they’ll be able to have access to additional working capital.
It’s also important in the attraction of investors and makes you look good in the eyes of vendors and suppliers. However, building a good credit history may not be easy and takes a long time. Start-up businesses often apply for quick financing such as an online line of credit in order to establish a stable credit background.
Having a strong credit background is proof an entrepreneur’s business is creditworthy to lending companies. No matter how great your business is, it won’t do you any good when it’s time to take out a loan. With the downward trend in the economy today, good credit is your best bet when it comes to expanding your business.
Being an entrepreneur means you also have to be proactive. This means doing everything you can do to make applying for a loan as easy as possible for you.
Here are some of the best ways to build your company’s credit from the ground up:
1. Separate Personal from Business
The first thing to understand about your credit background is the fact that business and personal credit backgrounds are different. Since your goal is to create a credit background for your business, you have to see and treat your credit background as separate entities.
However, many businesses usually obtain their operating finances on one bank account. This makes it harder for credit companies to determine which one is personal and business-related.
If you haven’t separated your accounts yet, now is the time to do so. Keep track of all your business transactions and be sure to create a separate financial account for your business transactions. Separating business from personal not only helps you build a credit background, but it can also help make your accounting easier when the tax season comes.
2. Keep a Good Personal Credit
Although it’s mainly for your business, a good personal credit background can also come in handy in building your company’s credit background.
Most lenders will usually ask for a personal guarantee when you’re applying for a business loan. This helps them determine how financially responsible you are and whether or not you’ll be able to make repayments.
Be sure not to go over your personal credit card’s credit limit. Other than that, don’t make the mistake of using your credit to fund your business. Believe it or not, it will only do more harm than good for your company’s credit background. Maintain good financial behavior so vendors or lenders will see you as a good candidate.
3. Check Your Credit Report Occasionally
There have been numerous times where entrepreneurs have been taken aback by their bad credit report despite being a responsible loan payer. When it comes to your business’s credit background, the payments you make to your suppliers or lenders aren’t automatically reported to the credit bureaus. It will only be reflected on your credit report once the company you’ve worked with reports it.
With that, it’s always important to check your credit report from time to time. Make sure that all of your payments are reflected accordingly. If there’s one missing, be sure to contact the company and ask them to report your payment to the credit bureau.
4. Apply for a Credit Card or Line of Credit
Credit cards and line of credits (LOCs) are the easiest business financing options to qualify for if you’re still trying to build your business credit. Credit cards can come in two forms: secured and unsecured.
The former requires a cash deposit which protects the lenders from default payments. The latter, on the other hand, will not require a cash deposit but may include a good credit background as a requirement. For start-up businesses, a secured business credit card may help in building your credit background.
A business line of credit (LOC) is also a good financing choice for start-ups that offers many advantages. Aside from easy access to cash, applying for a LOC can also help you build a good credit background. The only requirement for this is to make payments earlier or on time while keeping your expenses at a minimum.
5. Be a Responsible Borrower
It’s important you not be an impulsive borrower. The tendency with too much borrowing is that instead of helping your business build a good credit background, it will be buried in debt. If this does happen, there’s also a likelihood that you’ll miss payments from time to time. In the end it creates more financial issues for your company, which will be reflected in your credit history.
Limit your borrowing to your repayment capacity. This will give you a solid head start in building your business’s credit history.
An Online Line of Credit is Just a Piece of the Puzzle…
Building a strong credit background is extremely important for businesses to succeed. It helps attract investors and makes loan applications easier for you as a business owner. While applying for an online line of credit, having a good credit history comes down to how financially responsible you are as an entrepreneur.