5 Ways to Build Business Credit

Did you know that as many as 65 percent of business owners make their business purchases on credit? Every business requires good cash flow to keep functioning and meet its obligations. An excellent credit facility is crucial to such an endeavor when the bills are due, or a large order that needs financing has come in, but there is no money for it at hand. A business with a poor credit rating will find itself locked out from such life-saving facilities when they most need it.

A credit report is no longer just about the financial picture of your business; it is about its credibility. Anyone can access your business credit report, unlike a personal one. Be it your creditors, potential clients or partners, they can build an opinion about your firm’s trustworthiness from its financial resume.

While business credit reporting is similar in many respects to personal credit reporting, there is a significant variation to note. In monitoring business credit, there isn’t any FICO-like standard that seeks to streamline the calculation of how the scores. The main credit bureaus (Equifax, Experian, and Dun & Bradstreet) each use their unique formula to calculate the score, and there is little transparency in how this happens.

How to Build Business Credit

If you are looking to build your firm’s credit history, there are several ways you can attain that objective.

1. Secure Trade Credit from Your Suppliers

Does your business procure any materials from third party suppliers? This could be one good avenue to build up your firm’s credit rating. Many supplies typically allow for an accounts-payable relationship. This means that you can source the materials you need on credit and they invoice you for it later on. These trade arrangements assume the nature of a lender relationship and can vouch for your firm’s credit worthiness.

To build your business credit here, ask your supplier to report your credit payments to a business credit bureau. Remember that to benefit from this you need to meet the terms consistently, and conditions your provider attaches to the credit facility. When considering engaging a vendor, find out if they will report your payments. For those that opt not to, list them as a trade reference and the credit bureau will contact them to find out your payment history.

2. Use Lenders Reporting to Credit Bureaus

A good way to build your business credit history is to get a loan and successfully pay it on time. Ask a potential lender whether they report to a credit bureau before taking out a loan with them. If they do report and you service the loan on time, it will improve your firm’s credit score.

Banks report to these credit companies, but they typically stay away from any business with a poor credit score. Online lenders are more open to engaging an enterprise with a low credit rating and if they do report, can offer an excellent opportunity to build your credit.

3. Use A Business Credit Card

A business credit card can be a great way to shore up your firm’s credit score quickly. The trick is not to increase your costs as you use it. The best approach is, therefore, to use it for day-to-day company transactions and treat it as you would cash in hand. Don’t spend any money you don’t have. This will lead to lower interest rates which when paid in full and on time every month, significantly improves your credit rating

4. Use A Business Checking Account

The financial transactions belonging to your firm need to be separate from yours. A business checking account will help you create and build a track record of how your company operates financially. This history will be quite important when improving your business’s credit score in the future. There are many free business checking accounts with various features that you can evaluate to use at minimum cost.

5. Update Your Credit Bureau Information

Each credit agency creates a profile of your company that contains all the relevant information. Different parties that seek your business credit rating will use a different credit bureau. Update all your company’s information across all three agencies to reflect any recent improvements in the score. Businesses that have a complete profile with a credit rating agency fare better credibility-wise.

Conclusion

Credit is crucial for companies for various reasons. A good business credit score is therefore essential as a measure of the firm’s trustworthiness. There are varied ways a company can build its business credit score to secure lower-interest loans and other future benefits.

Wesley LeFebvre is a full-time content publisher who enjoys helping people find the best interest rates on financial products such as personal loans, business lines of credit, home mortgage products and credit cards. He also frequently writes about the ways people can make the best use of the credit given to them so they can maintain a good credit score and don’t go deeply in debt. You can read more from him and others at APRfinder.com.