For small business owners, it is extremely important to build business credit and maintain it consistently. A good credit score is essential for securing loans at attractive interest rates to fund your business. It is estimated that that about 65% of all business owners make use of credit for their business purchases. Now, if you are wondering how you can build credit for your small business, the answer is it is not something that will happen overnight. It is a gradual process and starting on this immediately is what will help you achieve your target at the earliest.
Look at these five ways which make it possible to build business credit for small business:
Verify SIC and NAICS codes of your business
Quite a few businesses are allocated the wrong NAICS (North American Industry Classification System) or SIC (Standard Industrial Classification) codes. These codes are indicative of industry risk and being listed under a riskier sector can have an adverse impact when you are trying to build business credit for small business. If such an error has occurred, it is essential to get it corrected at the earliest.
Monitor your credit reports
It is important to keep checking your credit scores on a regular basis when you are trying to build business credit for small business. There is always the possibility of erroneous reports which can affect your credit rating adversely. By pinpointing such mistakes early and getting them corrected, you can keep your credit rating robust.
Maintain a healthy debt-to-credit ratio
Ensure that your debt to credit ratio is steady at around 50%. This will demonstrate that your business has not overextended itself financially and is prudent in credit utilization. If you do not have a payment account linked to your business, it is important to get one as this is essential while attempting to build business credit for small business.
Get vendors and suppliers to report payments
If you have a good relationship with your vendors and suppliers, ask them to report your payments to the credit bureaus. Instead of making immediate payments for goods and services, you can set up credit accounts that give you the option of settling bills within 30 days. If your business is pretty new, you can look around for suppliers or vendors who do report to credit bureaus and start relationships with them. Making the payments to suppliers punctually indicates that you are a trustworthy business that knows its responsibility.
Lease instead of purchasing
If your small business requires specific equipment, you should consider leasing it instead of buying it outright. It can be simpler to qualify for a lease rather than a loan or credit line since the equipment will be considered the lease’s collateral. All you will need to ensure is that the terms of the lease are met and timely payments made to ensure it reflects favorably in your credit report. Again, pick a supplier who reports this information to credit bureaus in order to strengthen your business credit.
Building credit for a small business is a process that will require time and effort. That said, getting credit approval is an opportunity, but the way in which you will use this is what will help you build credit. And once you have a robust credit history, getting large loans and better lines of credit will be easier. But remember, that along with this, lender will also check things like the capital invested in the business, the purpose of the credit or loan, balance sheets, profit and loss data, and any collateral that you can provide as a guarantee.