As with a personal credit score, having a good business credit score will help lenders, suppliers, investors, and other creditors quickly and efficiently decide whether or not they want to become financially involved with your business. Once you begin to lose your credit score, it can be tough to find those who are willing to invest in your business, and so it’s important to keep it maintained. Below we discuss how to build your business credit score.
Why is it important to build your business credit score?
Forty-five percent of businesses are rejected by creditors when it comes to applying for a loan due to their credit score, and so it is clearly a common problem which needs to be dealt with adequately. Unlike your personal credit score, potential business partners can view your business credit score, and so it is something you should strive to keep maintained. These five steps will help you to do so:
1. Get a credit history going with your business
It does not matter whether you need credit or not at this particular moment, apply for it anyway so that you can begin building up a positive credit history. Many banks will want to see at least two years’ worth of credit history with a small business before they even consider dealing with them.
Other ways of doing this, however, include applying for a small bank loan or getting a business credit card.
2. Grow your credit and continue to use it
As well as applying for credit early on, it is important to begin using it early. Businesses with a good business credit score have been carefully building it up over a number of years. Once you begin to establish a line of payment, it is also worth requesting a bigger amount of credit, even if you do not need it.
3. Watch your own personal credit rating
If you own the business, then your personal credit rating will also have a large impact on a bank’s decision of whether or not to lend you money. Co-founder of MultiFunding LLC, Ami Kassar, states that banks will typically look for a personal credit score of around the mid-600s.
Ways to boost your own personal credit score include paying your bills on time, preferably before the deadline, keeping a low level of debt compared to your available credit on any credit cards and keeping any balances on your credit card under around 30% of the limit.
4. Keep on top of your business taxes
You need to make sure that your business stays compliant with all necessary tax paperwork or else this will have a negative effect on your business credit score. Keep on top of your business taxes, file all of the paperwork and make all of the necessary payments. If you begin to feel that your tax situation is a struggle, seek advice from a tax expert who specialises in SMEs.
5. Consider reaching out to more than one lender
There are multiple credit lenders available on the market and it is worth building up relationships with several of them. Banks can change policies with very little warning, and so it is useful to have your funds and credit spread over multiple areas.
For instance, think about having a credit card with a major bank and a credit line with a bank that is more local to you. The only downside to this is that a major bank will be able to offer and provide more deals or credit lines.
Why it pays to have a good credit score
You may be the most driven individual in the world with the greatest business idea ever, but lenders and investors have to deal with cold, hard facts. Even if they like the sound of your SME, if you have a bad credit score they will inevitably see their own money making its way down the drain if left in your hands, and are unlikely to invest.
Once you begin to gather a negative business credit score it can be hard to re-build, so it is important to think about this early on. Follow the steps above and you can build a good business credit score in no time at all.