Your business credit score can play a major role in sustaining the success of your company. An organization’s credit score enables vendors, contractors, lenders, and other creditors determine whether you can pay your debts and still remain profitable. Understanding the importance of your business credit is crucial. No matter what your business credit score is, you want to improve it. Here are ways you can achieve that.
Apply for credit before you need the money
Soon after launching your company, you should start thinking about building credit. Small businesses often have to demonstrate good revenue for at least two years before banks will consider approving them for any sizeable line of credit. Ways to shorten that period include getting a minimal business credit card or a smaller loan. Even a limited credit history is better than none. If you have trouble securing even small loans, try obtaining a store-based credit line with your a big-chain supplier like Home Depot or Staples. Many major retailers offer commercial credit accounts that will contribute to your credit history. If all else fails, you could even obtain a secured card in your company name.
Know your personal credit score
The chief factor many banks look at in deciding whether to lend new businesses money is the personal credit rating of the owners. Lenders normally expect a personal credit score of around 650. To boost personal credit scores, try to pay your bills on time. Maintain a low debt/credit proportion in your credit cards, preferably a debt level that’s under 30 percent of your limit. Also, be aware that lenders will generally check the credit of any business partners with an investment of more than 20 percent in your company.
Use credit to grow credit
Most businesses with high credit scores started small and improved them by applying early for as much credit as they could comfortably afford. Consistently obtaining, paying, and seeking additional credit will constantly improve scores with minimal risk, so that you can obtain a bigger loan when you need it. The better your credit history, the easier it will be to increase your credit limits. You might also consider establishing a credit profile with Dun & Bradstreet (http://www.dnb.com), a business reporting agency used as a resource by many lenders. Adding credit references will help to develop a more impressive credit profile.
Consider the Alternatives
Traditional banks are not the only means of raising cash. There are nearly always other options, such as going public to raise stock, seeking investors, sale of rights to intellectual property or patents, or secured loans against business property. Another good option is merchant cash advances, where you can borrow against unpaid invoices. National companies like Business Credit & Capital can help you by providing funds that, unlike bank loans, you can use as you see fit, to pay off debts or invest in growth. With a business cash advance, there is less concern over credit scores, and the process is faster and less rigorous than applying for a bank loan.
Build relationships with multiple lenders
Banks are free to change their lending policies when it suits them. They may decide to lower your credit limit on short notice, so that you’re left with fewer resources than you anticipated. Therefore, it’s a good idea not to rely on a single lender for all or even most of your needs. Instead, try having credit cards from at least two major banks, and lines of credit from respected local lenders, including credit unions. A large bank may offer more products, services, and bigger loans, but a local lender is likely someone you can strike up a relationship with in order to discuss your needs personally.
Building up a solid credit rating is important for the future security of your company. But don’t forget that in the meantime, or when credit is already stretched, other alternatives like cash advance can keep the money flowing. If your debtors can see that you’re going to cover your bills, you’ll always be able to find more funding.
