Whether you are running a small business or a large one; your business credit report is as important as your personal credit.
Every small business should be aware of their credit score as it directly affects the lender’s overview of looking on to your business. Various commercial bank and lenders are quite reluctant in providing the credit until you have a strong credit history.
Establishing business credit report might seem like a daunting process- especially if it’s new. But, all you need is to follow these five simple steps to begin building a good business report.
1. Set up a Business Entity
Being a small business owner, you will not be able to apply for a business credit or a loan as sole proprietors are only eligible for personal loans. To receive a business credit; you need to separate your business from your personal finances by obtaining a legal entity such as a corporation or an LLC.
Also, get a DUNS number, which is used to create a business credit file.
2. Get a Business Specific Bank Account
To get business credit, the lender or the bank requires a valid business reference. Your bank account needs to be two years old if you want to apply for a business loan. It is also important that your account should reflect some financial transaction regarding cash flow, which makes your business capable of getting a business debt.
3. Obtain a Business Credit History
Before lending you the credit, the lender will always look for a good payment history. Keep a trade reference sheet with three trade reference which should include your name, contact information, credit and debit limits, and other important information regarding your business.
If you are a credit card user which you use with your business; it is advised to keep your balance low and to make payments on time
4. Keep a Good Personal Credit Rating
These days many banks look for a personal credit score of at least the mid 600’s before lending credit to a small business owner. To obtain a good personal credit rating, always pay your bills on time, maintain the balances under 30% of your credit cards, and keep a low ratio of debt to available credit on other cards.
To get a good credit amount, your business partner or any investor should also have a good personal credit.
5. Build a Good Tax and a Credit Report
Not filing your business taxes on time can also have a profound negative effect on your business. Make sure to always clear your payments in time and be sure to file tax reports for your business.
Always keep your tax and a credit report ready to make through all the growth opportunities.
Conclusion: You will never be able to establish a good and effective business credit in a matter of days. Maybe, you don’t require a credit today but having access to a great credit score can help you adapt the changes quickly.