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Obtaining capital as a small business can be a challenge, especially when starting out. A strong credit profile allows business owners to negotiate better payment terms, borrow money at lower interest rates, and have greater control of their financial dealings. These five steps help business owners achieve a strong credit profile in no time.

REVIEW BUSINESS CREDIT REPORT FOR ERRORS

Even though you are frequently asked to furnish personal financial data for credit decisions related to your business, it is key that the credit reporting agencies keep the two profiles completely separate. Request copies of both credit reports every six months, or at least once a year, to ensure their accuracy. If there are any discrepancies, be certain to address them immediately. A clean and accurate credit report is an important part of a strong credit profile, and keeping yours up to date will help you reach your financial goals.

WORK WITH VENDORS WHO REPORT TO THE MAJOR CREDIT BUREAUS

As a small business, it is essential to keep your credit profile as robust as possible while minimizing the risk of becoming over-extended. A lot of vendors report the payment history of their clients to the three major credit bureaus and this is a great way to build up a dynamic credit profile. When possible, use vendors that report their customers’ payment activity; even those that may not seem obvious, such as your local office supply store and office water delivery service. The more positive credit activity that your business has, the better.

MAINTAIN A LINE OF CREDIT

Whether through a bank loan, or one of your business credit cards, a line of credit has many uses. As you are growing your business, there will be cash flow ebbs and flows that can vary rather significantly, leaving you short one month and flush the next. A line of credit will help to smooth these fluctuations and will also help you to build a strong credit profile. Small business loans can be difficult to obtain, but as you improve your credit profile they will become within reach. Developing a relationship with a local banker will be an enormous boon to your banking experience.

USE BUSINESS CREDIT CARDS SPARINGLY

Upon application, most business credit cards require a personal guarantee of some sort, are tied to your personal credit profile, or both. There are many good uses for these credit accounts, but also several pitfalls to avoid. Make sure you apply for the best business credit cards. Unlike a credit line, the interest rate for a credit card account can fluctuate and will likely be higher. Use any credit cards sparingly, and do your best to pay the entire balance each month. Similar to lines of credit, credit cards can smooth out bumpy months, but should always be used with their shortcomings in mind.

PAY ACCORDING TO AGREED UPON TERMS

It may sound obvious and not worth noting, but paying within your terms is of the utmost importance when working to build a healthy credit profile. If you are experiencing cash flow difficulty, contact the relevant creditors immediately. Many of your vendors may also be small business owners and will understand cash flow issues as well as you do. Be upfront about any late payments, and inquire if there is any possibility of a late or reduced payment. Being proactive in all situations, even if you do not get the desired results, is a much better approach than trying to avoid problems.

Small business owners have a lot to deal with as they work toward success, and actively building a strong credit profile will pay in dividends.

 

 

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