So you've finally decided to go for it — You're ready to be an entrepreneur and get your business off the ground. You've done your research, you've found your niche' and you're ready, Woo-hoo! But wait — are you really ready? How does your business credit profile look? Did you know that building and maintaining a solid business credit profile can facilitate and secure certain perks for your business, including:
Better Premiums
More Desirable Loan Terms
Successful Vendor Negotiations
However, in order to build business credit you will need attention to detail and patience. Yes, patience, as it can take a little while to build up your business credit profile. Your business credit profile will display your business's effectiveness in its purchasing power, debt, and how it handles the business's finances in general.
What's Business Credit — Isn't It the Same As My Personal Credit?
Well, not exactly, although it is true that just like your personal credit, building business credit happens over time. Business credit takes into account many other factors which form your business credit score.
Equally, personal and business credit alike can impact the rates you pay for services and goods. For instance, if your business's credit scores are good, you could be afforded the benefit of paying lower insurance premiums, or, you could receive lower interest rates on lines of credit as well as small business loans. This could come in handy for you when you need to negotiate extended vendor terms, which could offer you more room to manage your business's cash flow.
Crown Financial, LLC has put together some tips on how to build your company's creditworthiness, including, what business credit is, and how businesses can use it to their advantage.
What You Should Know About Business Credit
First things first, prior to establishing any credit for your company, you'll need to legally register it as a business entity. You'll also need to have adopted your business structure in order to build credit with the business credit reporting agencies.
Business Credit and How It Works
When a business works with creditors, vendors, or suppliers, a business credit report is normally generated that shows a company's activity and accounts to the business credit bureaus. This is how your business's credit scores are produced.
Who Is Business Credit For?
Any eligible business can benefit from credit. Business credit is generally sought when you need to pay vendors or suppliers on payment terms, or you need to borrow money for your business. So having good business credit is essential for your business, and it could make a difference in your business succeeding or crashing.
Why Do I Need Business Credit?
The creditworthiness of your business affects many decisions, including:
Your business's insurance premiums
Your effectiveness to raise investor money
Your qualifications for obtaining contracts with other agencies
Your credit line and net terms that you acquire from suppliers and vendors.
Rates on loans and your eligibility for Small Business Administration loans.
Seven Tips for Building Business Credit
Building your business's credit can be more challenging than building your personal credit. And, just as your personal credit score takes time to build, your business credit score will also take time. Whether you're starting a new business or if you've been in business for a while, and you're just learning of business credit, follow these seven steps to make sure you're on the right track.
1. Verify Your Personal and Business Credit
Not sure if your business has even obtained any credit? Don't fret: There are ways that you can check your business credit reports.
Dissimilar to personal credit reports, bureaus are not legally required to give you free access to your business credit reports. However, you can pay to get a full copy of it from all three of the major business credit bureaus, which include:
Some free services may be able to provide you with also give you summaries or access to your scores and business credit reports.
2. Is There One Single Business Credit Score?
Simply put, no. Experian, Equifax, and Dun & Bradstreet are competing agencies that each develop, and sell their own business credit scores. Also, when evaluating your business, many vendors and lenders may also prefer specific business credit reports.
3. Build Your Business Credit
If you only use your personal credit card to cover your business expenses, don't be surprised if your business has yet to acquire business credit. Some businesses depend entirely on data regarding your business. However, some business-scoring models may produce a business credit score dictated by your personal and business credit.
In order to attain business credit, you will first need to complete the following steps:
To ensure your business and personal identities are separate, you will need to form a limited liability company (LLC) or incorporate your business.
Obtain a federal employer identification number (EIN). An EIN works as your business's Social Security number.
Use your business's legal name to open a business bank account.
Use your business name to install a business phone line.
Register with Dun & Bradstreet to get a D-U-N-S number. This number is free for businesses.
Business credit bureaus may use your D-U-N-S or EIN numbers to analyze your business's activities and payments when they're reported, while business credit-scoring systems can use the information to create scores.
4. Obtain a Business Credit Card and Only Use Vendors That Report
You will need reporting from vendors and other accounts that report to the credit bureaus to build a business credit profile. A business credit card may provide rewards programs and other benefits that could be instrumental for business owners.
5. Pay Your Vendors In Advance
The Dun & Bradstreet PAYDEX score is a highly used business credit score that's based on your business's payment history relating to vendors, and it ranges from one to one hundred. Paying your vendors and suppliers early can get you a higher PAYDEX score.
6. Monitor Your Business and Personal Credit Reports
Don't be caught off guard or inconvenienced by fraud or errors on your business credit file. This can negatively affect your business credit, so it's important to check your business credit regularly.
Next Steps
If your business requires a new source of funds — to grow or save your business, satisfy payroll, acquire new customers, or, if you just need help managing your company's cash flow, call us today at 281.646.2905 or complete our contact form right here.
The staff at Crown Financial, LLC look forward to working with you so that you can work on boosting your business's creditworthiness. In the meantime, check out our blog over here.