How to Make Your Business More Credit Worthy
By Rohit Arora, CEO of Biz2Credit
Whether it’s good, bad or non-existent, a business credit report plays a lead role in the funding decisions of lenders and creditors. Without a credit history, it is difficult for an entrepreneur to secure capital. Establishing and maintaining a solid payment history helps lenders to make better informed decisions about extending credit to a company. Below are some practical suggestions for small business owners who want to make their companies more creditworthy:
1) Separate your business and personal accounts
Positive business transactions establish a credit track record and indicate future performance. In a still tight credit market, lenders want to make sure they are giving money to companies that will be able to pay back with interest. (You may be able to pay your mortgage, but banks want to know if you have the ability to grow a business.) Demonstrating that you can manage your cash flow is critical. Establishing separate business accounts will help do this.
2) Pay vendors on time, or early if possible
Every company loves prompt payment. Some vendors will even offer incentives, including discounts to those who pay cash up front. Additionally, prompt payment eliminates late fees, thereby improving both your credit rating and your cash flow.
3) Ask suppliers to report transactions with your business to credit agencies
Reporting of payments for business transactions will help establish a credit history with major credit rating agencies, such as D&B, Equifax, Experian, and TransUnion.
4) Review payments that are automatically reported on your business each month
Continuously track your automatic payments and keep a watchful eye on any contracts that may have expired.
5) Amend any incorrect or out-of-date business information
Mistakes happen. Be sure that a simple reporting error or a typo does not harm your business.
6) Open a business credit card
An easy first step in establishing a track record of prompt payment is to open a business credit card and to pay it on time. For small business owners, American Express offers its Gold Card, which earns points for every purchase, double points on advertising, gas, and shipping, and triple points on airfare; and the Plum Card provides flexibility to manage cash flow and offers an early payment discount of 1.5% if you pay your bill in full within 10 days of your cycle.
7) Build a credit history for your business
It can often take a growing business more than a year to build a solid financial track record. Financing methods such as nest egg savings or consumer credit cards, do not allow business credit to build.
8) Request vendors to serve as credit references
If you have established a solid relationship with a vendor, ask him or her to serve as a credit reference. Vendors, particularly those whom you regularly pay on time or in advance, will likely be willing to help.
9) Purge your credit files of resolved lawsuits and liens that are no longer applicable.
Erase black marks on your record as soon as you are able to do so. There is no reason your credit should suffer because of situations that have long been resolved.
10) Check your business credit reports at least once a year
This may seem like a no-brainer, but business owners often claim they are too busy to take the time to check on their business credit reports. It is important to make sure there are no errors. If your business situation tends to change frequently, check them quarterly.
If your business exhibits these characteristics, you will be on the right path to establishing a good credit history, which will make it easier for your business to secure capital when you need it.
Rohit Arora is co-founder and CEO of Biz2Credit, an online resource that connects 1.6 million small business owners with 1,100+ lenders, credit rating agencies and service providers such as CPAs and attorneys via its Internet platform. Since 2007, Biz2Credit has secured more than $550 million in funding for small businesses across the U.S.