Business credit is a powerful tool that gauges your company’s fiscal strength. A solid business credit score is how you can secure attractive terms on business loans, negotiate cost-effective rates for business insurance, and land lucrative deals with suppliers. Let’s delve into a comprehensive step-by-step guide to building and enhancing your business credit.
What Is Business Credit?
Your business credit score is like a financial report card, demonstrating how trustworthy your business is when handling borrowed money. This score hinges predominantly on your company’s debt history and payment patterns, acting as a testament to your reliability in meeting payment deadlines.
Just as personal credit scores range from 300 to 800, with anything above 700 being deemed as good, business credit scores have a scale, though a bit different. The business credit score spectrum stretches from zero to 100. The higher your score, the more confidence lenders have in your ability to repay loans.
Business credit scores falling between 50 and 79 are usually categorized as moderate risk. Meanwhile, if you’ve managed to score 80 or above, you’re considered a low-risk borrower in the eyes of lenders. Here are ways of improving business credit:
Create Tradelines with Your Suppliers
Establishing tradelines with your suppliers can be an exceptional strategy when building and enhancing your business credit. Think of it as a shared journey of growth and trust, where your supplier extends your trade credit, enabling you to settle your bills days or weeks after receiving your inventory.
This kind of accounts-payable relationship isn’t just about convenience. It can significantly boost your business credit score, especially if your supplier diligently reports payments to a business credit bureau.
If you’re dealing with small vendors like office supplies distributors or water suppliers, you can establish tradelines with them too! It’s not a dead-end even if they don’t report to a credit bureau. Simply list them as a trade reference on your account. You can use a tradeline supply company review to guide your online tradeline purchases.
Contact Commercial Credit Bureaus to Update Your Credit Information
When building and enhancing your business credit, engaging actively with the three primary commercial credit bureaus is crucial, Experian and Equifax. These bureaus are responsible for amassing data and generating your business credit scores. However, not every lender or supplier reports to all three bureaus. Here are some steps you can take to achieve this:
- Update financial records: A positive debt load or cash flow change can help elevate your business credit score. If your file showcases outdated records, upload your latest balance sheet, profit and loss statement, and cash flow statement. This ensures that your financial data is up-to-date.
- Audit your files for precision: Inaccuracies in your file could negatively impact your credit score. Make it a point to visit each bureau’s website and thoroughly scrutinize your business’s file. If you spot any discrepancies in your payment history or outstanding balances, report them to the respective bureau without delay.
- Leverage trade references: Trade references can significantly boost your credit score. If you have a commendable track record with your vendors and suppliers, including timely payments, request them to provide a trade reference on one or more credit bureaus’ websites. Even if they’re unable or unwilling to do so, you can still include your vendor as a trade reference on your credit file. The credit bureau will then seek additional information from them if required.
Get an EIN and Register Your Business
This should be on top of your list if you’re building your business credit. This procedure can fluctuate based on your business model and operating state. For instance, if you’re a sole proprietor using your personal name for your business, certain states might not necessitate registration, although acquiring a local business license could be compulsory. Conversely, you’ll likely need to register your business if your venture is an LLC.
Equally important is securing an Employer Identification Number (EIN) from the IRS. While this business tax ID doesn’t directly influence the construction of your business credit, it’s a requirement for most businesses set by the IRS.
Take Out Loans From Lenders Reporting to Business Credit Bureaus
Seeking small business loans can significantly enhance your business credit, especially if you’re diligent about timely repayments. Not all lenders share their data with business credit bureaus. Traditional banking institutions usually do, but qualifying for their business loans can be challenging unless your credit score is impeccable and your business has been operational for several years.
On the other hand, online business loans present a more accessible avenue for budding businesses or those grappling with less-than-perfect credit. Several online small-business lenders, such as LendingClub, OnDeck, and Bluevine, actively report to business credit bureaus, which can help you build your business credit. Unfortunately, merchant cash advance companies typically don’t follow this practice.
Streamline Your Method of Paying Bills
Boosting your business credit score can be as straightforward as refining your bill payment methods. Early bill payments are a proven strategy to enhance your credit standing. If your payment history is littered with delays or missed payments, it’s high time you revamped your payment procedures.
Begin by thoroughly examining your cash flow and in-house systems that manage invoice receipts, accounts payable, and bill payments. Alternatively, you might need to design an efficient process for invoice approvals to accelerate their progression through the pipeline. No matter the solution, remember that a streamlined payment method is key to enhancing your business credit score.
It takes some work to build and improve your business credit. However, by having a good idea of what lenders look for and taking steps to present your business in the best light possible, you can make great strides in boosting or maintaining a good score for yourself. Learning how to establish your business credit properly helps protect you from financial struggle, it builds credibility with your potential lenders and allows those same lenders to offer more attractive terms if and when you ever need external financing.