No matter what the size of your business, good business credit is essential. If you want to establish lines of credit with vendors, apply for and get approved for a business loan or make a major purchase for your business, you need excellent credit.
So how do you establish a good business credit score? What can keep you from achieving that goal?
Unfortunately, in some cases, establishing business credit isn't easy. This may be the case if you are just starting out and you have limited credit history, or if your personal credit is poor.
The good news is that there are ways to establish or re-establish your business credit. Here are 5 steps you can start taking right now.
1. Establish And Maintain Good Personal Credit
If you are a small business, it's important to be sure your personal credit is in order, since many lenders will take that into consideration in lieu of business credit history. Try to keep that score above 700. If you are offered credit you will most likely have to sign a personal guarantee which is a big risk to your personal credit. Knowing that we had personal guarantees always made me work just a little harder.
2. Start Small And Work Your Way Up
If your credit history is limited or less than perfect, it's important that you not try to apply for big loans or lines of credit.
Keep it small and you will have better luck. Try getting a small line of credit with a vendor, or credit with an office supply store, etc. Apply for a small loan, and pay it off right away. We took this approach early on in our business and most of the vendors were happy to report to Dun & Bradstreet on our behalf.
3. Use Credit Wisely
Pay off your credit accounts and small loans as soon as possible. This is the best way to establish your business credit. Each time you pay off a balance, you are improving your business credit.
4. Don't Overextend Yourself
This is easier said than done. We had to do this when we first started and it took a long time to dig our from under this debt. If you can help it don't max out accounts. Don't allow your amount owed to exceed your available credit. It's tough, because as a growing business, you need goods and services, but overextending yourself is a recipe for disaster and why so many small companies fail.
5. Be Sure You Are Working With Lenders That Report To Credit Bureaus
While it sometimes can't be helped, as often as possible do business with lenders who report to the major credit bureaus. Great payment history won't do you much good if it's not being reported!
Hopefully, these tips will help you establish the business credit you need.