Credit-Building Basics
Building and maintaining a solid business credit profile is essential to securing the lifeline of any business, regardless of size.
A strong credit profile can boost a company’s credibility, making lenders and suppliers more inclined to offer credit and favorable payment terms. Whether your business is new or established, big or small, consider the following strategies in this guide to help you build a robust business credit profile.
Register your business
One of the key steps is registering your employer identification number. Besides being required for various financial and tax purposes, this unique number enables lenders and credit agencies like Equifax and Experian to assess your creditworthiness based on your payment history and credit utilization. You should also consider obtaining a data universal numbering system (D-U-N-S) number from the business credit bureau Dun & Bradstreet, which lenders commonly use to evaluate business credit profiles. Lastly, make sure that your business information—such as your address, phone number, and industry classification—is accurate and up-todate with all the credit bureaus.
Build your credit profile early
Lenders and credit agencies often view established businesses as less risky than newly formed ones because they are considered more stable and more likely to be able to navigate challenges and fulfill their financial obligations. So if you’re new in business, start building your business credit as soon as possible. A longer credit history provides more data points creditors can use to assess your payment patterns, credit utilization, and overall creditworthiness. Be sure to highlight your business’s positive aspects with potential creditors early to help sell its upside and value.
Monitor your credit report
Credit bureaus like Dun & Bradstreet, Experian, and Equifax specialize in collecting and reporting business credit information, including credit history, payment behavior, outstanding debts, and creditutilization, to calculate business credit scores. Monitoring your company’s credit report is essential; by doing so regularly, you can quickly address any inaccuracies or discrepancies. If you notice any errors, contact your creditors and the bureaus immediately to rectify the issues and maintain your positive credit profile.
Choose the correct type of credit
Smaller businesses may not have the same access to traditional forms of financing as larger companies. However, there are various ways to obtain credit regardless of your size. These can include secured or unsecured loans, installment loans, business credit cards, or lines of credit, all of which can help you manage your day-to-day business expenses while building a strong credit profile.
Establish tradelines
Tradelines are credit accounts you have with people or companies whose services you use, such as suppliers, contractors, and financial institutions. One way to create tradelines is to ask your vendors and suppliers if you can pay net terms rather than cash on delivery, which will give you thirty days to pay off your invoice balance. This, in turn, may help you manage or loosen up your business’s day-today cash flow and mitigate the risk of delayed payments, ensuring smoother transactions and building your credit score all at once. Having multiple tradelines will help boost your profile over time, but consider asking your creditors to report your on-time payments (not all automatically do) to the national credit bureaus to help speed up the timeline. Consistent and reliable partnerships can enhance your business profile and potentially lead to better credit terms and opportunities, so be sure to make an extra effort to cultivate these positive relationships with your suppliers and vendors.
Consider a loan with a personal guarantee
Sometimes it can be hard to avoid taking a loan without a personal guarantee, which involves using collateral to repay the lender in case your business defaults. However, it can be useful if you have a new business entity with no extensive credit history or want to expand but need additional funding to make that happen.
Research online business loans
Many online lenders have more flexible qualifications and streamlined underwriting processes than traditional banks. This can be advantageous if you are a business owner with poor or insufficient credit, as it may help you build your business credit history to qualify for better terms in the future. Just be sure to inquire with the online lender on whether it reports to the business credit bureaus since this will be essential for your business profile.
Pay your bills early
A critical element to building exceptional business credit is your payment history; although paying your debts on time is great, doing so earlier is always better. Dun & Bradstreet calculates your Paydex business credit score (from 0 to 100) by evaluating your payment track record. Like your personal credit score, the higher it is, the less of a risk you are to creditors.
Prevent long-term problems
If your business fails to pay taxes or debts, it may result in a lien or judgment against it, granting creditors the right to seize your assets to settle the outstanding debt. These negative entries on your business credit report can have long-lasting consequences and can stay on your business profile for close to seven years.
TAKE ACTION:
Review your current business credit profile, and identify one or two ways you can help give it a boost.