Establishing and Building Business Credit is Part II in a series begun in January.

Note: the previous post may be read by clicking here.

Establishing and building business credit is not always top of mind with business owners, especially those with younger companies. As a consumer, you know how important it is to monitor your credit score and take steps to ensure it’s as high as possible…but did you know that you should also monitor and take steps to boost your business’ credit score? If you own a relatively new business, you may be surprised to learn about the existence of business credit scores. You may dismiss the concept entirely, considering you may have already been extended business credit on the basis of your personal score.

But regardless of how well your business is doing or how high your personal score is, you’d be wise to pay attention, because chances are, at some point, you’re going to need access to cash. Without it, you may have challenges growing your business or even just keeping it afloat. In fact, 82% of companies that fail do so because of cash-flow issues. That’s why this blog post series is dedicated to educating you on business credit scores. In the second in this two-part series, we’ll discuss how your business’ credit score impacts your borrowing power, how to boost your score, and what you can do if you need access to capital but have too low of a score.

Q: Why do I need a business credit score?

A: If your business is just getting off the ground, you’re probably using your personal credit to do the borrowing. If things are going smoothly, you might be wondering why it’s necessary to establish separate credit for your business.

Getting financing may be easier: building business credit (and improving your score) can help increase your chances of landing a small-business loan or line of credit at favorable terms.

Rates on insurance policies could be lower: As your business grows, ensuring it could get expensive. Building business credit (the score!) may help keep rates lower.

Business and personal finances are separated: Creating a credit profile for your business adds a layer of separation between your business and your personal finances. Keeping your finances separate makes it easier to track business expenses for tax purposes.

Borrowing power increases: Strong business credit can help you access more cash at more favorable terms.

Q: How will my business’ credit score impact my borrowing power?

A: Building your business credit score will impact how much you can borrow and how attractive your loan or credit terms will be. It may also dictate the types of loan programs you can access. You definitely don’t want to wait until your business experiences a financial emergency to find out how much cash you can tap into—or even whether you can access it at all. You also probably want to avoid a situation in which you’re forced to accept less than favorable terms because your scores are too low.

While you may think your business credit score will make the most impact in determining your borrowing power, most lenders will also consider your personal scores. So, it makes sense to monitor those scores as well, and ensure you’re keeping them as high as possible.

Q: How can I establish my business credit score?

A: In the first part of this two-part series, you learned about the reporting agencies that monitor your business credit. But when you visited these sites, you may have that these organizations aren’t even tracking your company. If this is the case for you, there are some steps you can take to help them take notice of your business:

  1. Establish your business as a separate entity by creating an LLC or corporation. This helps the reporting agencies view your business as separate from you personally.
  2. Get a federal employee identification number (yes, even if you have no employees). You can apply for one for free through the IRS.
  3. Open a business bank account.
  4. Establish a separate phone number for your business, and ensure the number is listed publicly as your business phone.
  5. Open a business credit file. If the agencies have no record of your business’ existence, you should take the necessary steps to open credit files with the reporting companies. You can do this by:

A. Requesting that one or more of your suppliers or vendors reporting on your payment history to the credit-reporting agencies. If you can, try to work with suppliers that issue credit to your business (in which you purchase products or services now and pay for them later). If your supplier(s) don’t report, you can encourage them to do so. Need some tips on getting your creditors to report on your business dealings with them? Check out this article on how (and why) to report to business credit bureaus.

B. Registering for a D-U-N-S® number, which opens a credit file with Dun & Bradstreet.

6. Open a business credit card. Getting a business credit card (and using it) is a great way to build your business’ credit. A good place to start? Check with the bank you used to open your business checking account. Not an option? A simple Google search should give you plenty of options to choose from. Just know that the creditor will likely consider your personal credit report in order to make a decision, especially if your business is young.

Q: Building business credit – Can I do actually this?

A: Just like with establishing credit to begin with, building credit involves encouraging your vendors and suppliers to report your payment history to the major reporting bureaus, as well as trying to work with vendors and suppliers that regularly and reliably make such reports.

It practically goes without saying that you should make all your payments on time. However, what you may not know is that in order to maximize your credit scores, you should actually pay your bills early whenever possible.

You should use both your personal and business credit responsibly. And you should check your business credit files a few times a year to verify that they’re accurate and complete. In addition, you should review them for any signs of fraudulent activity.

Q: What can I do if need a small-business loan, but my business credit score is too low (or nonexistent)?

A: You may be able to obtain a loan based on your personal credit history, so be sure to inquire about this with potential lenders. If a credit card would help you manage your cash flow better, apply for a business card. You can also look into alternative-financing options if you’ve been turned down for a traditional bank loan.

The Importance of Managing Your Business Credit

Whether or not you think you’ll need business credit in the future, it’s wise to establish and build your business credit files with the major reporting agencies. It’s better to keep your options open as your business grows and evolves. With a solid business credit file, you’ll be the best position to take advantage of new opportunities as well as weather unexpected crises.

Have more questions?

Are you interested in building business credit? Want to find out your financing options? Contact Villa Nova Financing Group! We can answer your questions, offer advice, help you prepare to apply for a loan, and, of course, analyze the best loans for your situation, then seek out the very best lenders and terms from our extensive network of lenders.

Get answers to your questions

Business Credit Scores are only one party of the total equation. We invite you to speak with one of our commercial or residential mortgage experts about your financial and lifestyle goals. This no-obligation consultation can be held over the phone or in our Warren, NJ, office.

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