Businesses need a steady source of finance, and if your business revenues are not sufficient to cover the financial requirements of your business, you need to resort to loans. There are various types of business loans available in the market. However, to avail any loan, you need to have good business credit. Business credit or credibility shows the lenders the ease of repayment of their loans. If your business’s credit score is good, lenders would consider your loan applications favorably and easily offer you loans. So, do you know how to build your business credit?
Here are five of the most straightforward steps which would help you create a business credit –
Establish your business as a separate entity
Your business identity should be different from your own, and so you should establish your business as a separate legal entity. When you do so, the profits and losses of your business will not affect your personal finances. Moreover, your credit score and the credit score of your business would be separate. Even if your credit score is low, if the score of your business is high, you would be able to avail a business loan. Moreover, lenders also judge the financial standing of the company separate from your financial standing. So, give your business a distinct identity so that you can create a different credit score for it.
Get a business credit card
To build credit from zero, you need to have a form of a credit to your name. Business credit cards are the most readily available forms of credit that your business can have. These credit card offers would not only help you pay for your business-related expenses, but they would also offer you rewards and benefits on every transaction. Moreover, you can also get interested in free credit period on business credit cards, which would help in case of a financial crunch.
Pay your creditors on time
Paying off your creditors on time goes a long way in establishing a positive credit rating for your business. So, always plan the cash flows of your business in such a manner that the creditors would be paid timely without fail. This also includes payment of the credit card bills of your business. Only when the credit card bills are timely paid would you be able to create a good repayment history which would help in building good business credit.
Have a healthy mix of debts in your balance sheet
When choosing business loans, go for a combination of secured as well as unsecured loans. Having
only a single type of liability skews your business’s credit score calculation and should be avoided.
Check your credit reports regularly
Though many of you want to build good business credit, you often ignore checking the business’s credit reports. A regular check of credit report shows you the areas which need improvement and so should not be missed. You can take correctional steps when you know the anomalies in the report, and so the credit report should be reviewed periodically. When you take these steps, you can build credit for your business, which would help you avail loans when you need them.