In this article, I will lead you through the process which you need to take and the things you need to consider to build credit for your business, whether it’s a start-up or an established company.
This could be the most important article you have ever read for taking your business to the next level in terms of credit.
Building up a good credit score can be challenging for a small business owner or entrepreneur, but I can help you to get that top rating you deserve.
If you follow these steps, you can establish credit quickly and effortlessly for your business and access lower-interest loans and other forms of credit with low-interest rates to help your business expand and take it to the next level.
It is estimated that 3 out of 4 businesses don’t know why they were refused commercial business credit, and basically, it’s because they have a terrible business credit rating and didn’t even know about it.
Also, contrary to popular opinion, remember that having no credit at all negatively impacts your credit rating.
Most businesses are required by law to file a commercial credit report with a credit reporting agency before they can get business credit.
These reports list all their previous debts and the payments they made on those debts. So Improving your credit rating should be a top priority and can mean that you are 41% more likely to be approved for a business loan at a lower interest rate when you need it the most.
Good business credit.
If you apply what you learn here, you should be able to achieve an excellent credit score for your business in around 5-6 months.
When you first start your business, you obviously have zero credit payment history.
It’s essential that even if you don’t need credit at the beginning of the business, you take steps to start establishing a credit history for your business.
At some point in the future, you will need it, be it to fulfil a large order or because you need to raise finance to expand or purchase a new asset.
Start Establishing a Good Credit History.
So, the first thing you need to look for to start establishing a good credit history is to look for vendors who can supply goods and services to your business on a net 30 account.
A net 30 account with a supplier is simply an agreement that you can obtain the goods or services you require on day one, and you will then have 30 days to pay for the goods or services you have just purchased.
To build credit for your business, you must ensure that these accounts are always paid within the 30 days you are given to pay them.
If you start drifting past 30 days, this will impact your credit rating with specific companies that may report to credit reference agencies.
The four leading credit reference agencies you can check your score with are Equifax, Experian, Transunion, and D&B.
How the credit companies work.
Credit is a privilege and also a responsibility.
A business will only give you credit if they know you will pay the money back, and the way they tip the odds in their favour for this is by checking your credit history with credit reference agencies.
Whenever you have a credit account with any business, these businesses report your payment behaviour on your account on a monthly or quarterly basis, mainly focusing on four areas.
- Do you pay your accounts on time?
- How much do you pay – is it the minimum amount or the total amount each time
- How much of your credit limit is utilized for every credit account you have
- Your overall credit balance
These things, along with some others, are monitored constantly and will follow your business throughout its life, so it is essential to ensure you give your credit file the due care and attention it needs.
Having bad credit will impact your business.
Having a bad credit rating will impact your business’ success; I can guarantee that.
Remember, it’s easier to build an excellent credit rating for your business from scratch, but it is challenging to repair if you start damaging it by missing payments, so remember to pay these accounts on time, every time.
How can we build a good rating?
We have covered obtaining a net of 30 accounts from your suppliers. Still, many of these will be local suppliers and won’t be reporting your credit behaviour to the credit reference agencies, so we need to open some accounts that report to the reference agencies so we can build that excellent credit score with the leading agencies which will help your business gain an excellent credit rating.
Apply for an amazon building business credit card
The next step I want you to take is to apply for an Amazon-building business credit card.
Amazon report to 3 of the leading credit reference agencies, which are D&B, Equifax, and Experian. So, this is a great way to build that first-class credit score.
Ways you can get approved for this card.
There are two ways you can get approved for this card: if you have been in business for three years, or if you haven’t been in business for three years, you need to have at least five tradelines reporting to D&B and Experian.
You can get this credit card without personal guarantees if you meet these requirements.
You can apply for this card through the Amazon website, and the actual card is supplied in partnership with American Express.
Once you have been approved for this credit card, you need to start spending on this card every single month and, at the end of the month, pay the balance back in full, with no exceptions.
The credit card must be used within the credit limit.
Buy everything you need for your business on this credit card within your limit, obviously, and pay the balance every month in full.
A tip here to boost your credit score.
A tip to boost your credit score even more, is to pay a small amount of interest on the card.
Before you throw your arms in the air, hear me out.
If you sometimes pay a little bit of interest on your credit card, lenders will look more favourably upon you. Why? Well, because they are making a bit of money from you.
If there are two people with a credit card and one pays the balance off every single month in total, thus meaning the credit card company is lending them money for free and not making any money from them.
The other person buys things on the card and pays it back often but sometimes incurs a little bit of interest, thus making the credit card company money.
In the future, when you come to apply for different credit cards, who do you think will be favoured by the banks? The person they are making money from, of course, as everyone is in business to make money, right?
I’m not saying pay lots of interest every time, just a few dollars here and there, so they are making something from you, and it may get you better access to more significant credit amounts further down the line.
Business and personal expenses.
It is important that you keep business and personal expenses separate.
Your business is a legal business entity in its own right.
So, make sure everything you are putting through the business is for legitimate business expenses only, don’t mix personal expenses with them.
This will make your accounting more straightforward and more beneficial for improving your credit rating for the business.
Next, we must look at the money flowing through your business account.
All money generated through the business should be passed through your business bank account, even jobs where you are paid in cash.
Not only is this a legal requirement for tax purposes, but the more money you have going through your business account makes your business looks creditworthy.
So, try to get as much money passing through that account as possible to maximize your businesses credit worthiness.
Monitoring your credit.
Then we need to look at monitoring your credit. Once you start building your primary business credit profile, it would be a good idea for you to subscribe to at least one of the credit reporting services offered by credit reference agencies.
This way, you can see what is being reported, monitor your business credit report as it improves, and monitor all your credit accounts. This is also useful for preventing fraud on your account.
I personally monitor the credit history reports for all my businesses. I get a monthly report, which I skim over every month to ensure that everything is correct so that any of my companies can obtain credit when needed.
Your credit score, both for business and personal use, has the power to affect your life in many different ways.
It impacts which loans you can get, the interest rates you pay on those loans, and whether you even qualify for some jobs or an apartment, among other things.
So it’s essential to know how to monitor your credit score so you can see what’s going on with your credit report.
Building credit for your business is vitally important.
Learning how to build credit for your business is vitally important to the future success of your business.
Many entrepreneurs fail because they run out of cash in their businesses.
Strategic business owners prioritize establishing business credit scores through business credit reporting agencies and developing an excellent credit score as they know that as their business changes, they may need readily accessible finance to maneuver the company in its next direction.
So putting in place the things needed to establish great credit before you need it makes excellent business sense.
Ultimately, you’re creating a credit history and a network of financial relationships and bonds which could last for decades.
Lending and borrowing are getting increasingly competitive.
As lending and borrowing get increasingly competitive as the global economy changes, your creditworthiness will be one of your most significant assets in business.
As businesses struggle in hard times, they need access to more credit; the more people are borrowing, the harder it will be to get credit, so make sure you have an A+ credit rating so you can get credit if you ever come to need it.
Credit can be a tremendous asset in your small business. However, it also can be a challenge to get.
Even if you have good credit, there are many things you can do to try and improve your credit score further to put you in a better position to gain more credit if and when you need it.
So start off on the right path with your business and establish a great credit score, even if you never need it.