It is likely that you, as a small business owner, have goals like “grow my business” or “hire my first employee,” but “establish business credit” definitely did not make the cut. That is unfortunate because working on your business credit can really assist you in achieving the other objectives on your list!
When determining whether to give you money or invest in your business, lenders, investors, and credit card companies consider a number of factors, including your business credit. You are more qualified for several sorts of financing the better your business credit is. It might even help you score profitable business transactions and higher rates.
Set a goal for yourself this year to work on improving your company’s credit if it is now bad or nonexistent.
Month 1: Find out if your company has a credit report.
Find out if the big commercial credit reporting agencies are keeping an eye on your company. The main commercial credit bureaus in the United States are three:
- Dun & Bradstreet
- Equifax
- Experian
It is possible that you have not yet gotten accounts that are reported to these bureaus if you are unable to locate a credit report with these organizations.
Month2: Verify your credit ratings
If after following the next steps you were unable to locate a report for your company with any of the credit reporting agencies, you should skip this step and return to it later.
However, if you do find that these organizations have your business credit report, you may discover that you actually have many business credit scores, as each bureau is able to generate a unique score for your company.
The problematic part is that each has its own proprietary scoring methodology, so your score will vary depending on which one you borrow from. Additionally, not all credit card companies or lenders report to the same organizations.
For instance, your monthly payments on a small company credit card can be reported to Experian but not to the other two. Keeping an eye on your credit reports from all three major bureaus is beneficial because it is doubtful that you will know which reports or scores the lenders will review.
Month 3: Examine the vendor reports
It becomes more difficult, but not really. It is possible that you have accounts with suppliers or vendors that let you make payments on terms like net-30. While some don’t, some do disclose those payments to commercial credit bureaus. Since no business is compelled to submit to credit bureaus, your decades-long history of timely payments at the office supply store down the street might not have contributed to the establishment of your credit.
Start by ascertaining whether the suppliers you deal with actually submit information to credit agencies. You can find out this information by looking at your company credit report. Kind of. You might have to infer which company is reporting based on account facts because business credit reports do not contain the names of the organizations that report.
Think about moving to a different provider if your current ones do not report to credit agencies. Establishing tradelines with suppliers who provide you with terms of payment such as net-30 and who notify credit agencies of such payments is the first step toward creating your credit history. As you make on-time bill payments, your credit history and score will start to accumulate.
Month 4: Make your report look nicer
Occasionally, there may be disparities on your company credit reports, though this is not usually the case. It is possible that a company credit card that you closed three months ago is still listed as open on your report. Even worse, your report can contain accounts that are associated with another company.
To make sure your company credit report is accurate, it is critical to check it on a frequent basis. If not, the instructions for reporting mistakes can be found on the following links:
- Equifax
- Dun & Bradstreet
- Expedian
Month 5: Make a company credit card application.
Instead of using your personal credit card for company costs, it makes sense to use a separate card. It will facilitate tax filing as well as assist you gradually establish your business credit.
Choose a card with the features that are most meaningful to you, such as:
- No yearly charge
- Rewards (vacation or money back)
- low rate of interest
- Controls for employee cards
Recall that if you pay your credit card payments on time, and ideally in full, your credit will probably continue to rise.
Pay down all balances by the sixth month.
Of course, this should be a continuous habit, but if you have only been making the minimum payment on your company credit cards—if you have any—start aiming to pay off the entire amount each month before the due date. This will not only assist you in establishing your company’s credit, but it will also lower or perhaps completely remove your annoying interest expenses.
Consider where you are billing bills and see if you can cut back to better fit your available budget if you are unable to pay off your balances in full.
The following actions to establish business credit
If you choose to apply for a small company loan or line of credit after completing this journey, you ought to be well-positioned to be approved for funding. By doing this, you may be able to recruit additional staff, purchase more merchandise to keep up with rising client demand, or open up larger office space.
In any case, keep an eye on your business credit scores so that they develop alongside your company.
You are at a terrific spot even if you are not ready for finance. When making a decision to conduct business with you, some prospective customers (especially B2Bs) will investigate your business credit. You will acquire the job if their credit record is excellent!
