Setting up credit for your business is an important step for any company. Building good credit for your business, on the other hand, can take a lot of time, and business owners are often confused about how to do it. Here is what you need to keep in mind when trying to build a strong credit score in your new and growing business.
How long does it take to get credit for a business?
Like it or not, building credit is a long-term game. Estimates vary, but it can take at least two years to build a credit history for your business. Credit lenders usually want to see what your track record is and they need enough time to ascertain whether or not you are a safe bet.
Why is building business credit vital for your business?
Usually, when you're starting a business, you can use your personal credit to apply for a business credit card or a small business loan. But mixing your business and personal credit should be avoided at all costs. Once your business has credit, you can then apply for a business loan without having to put up any of your own collateral and the loan will be paid back by the business.
What are the benefits of building good business credit?
There are many like:
- Less expensive lending rates
- Experiencing more confidence when it comes to making decisions
- Creates opportunities to stay ahead of the competition
- Less stress for the business owner
- Much lower interest rates
- Easier access to funding
How do you tell the difference between personal and business credit?
Your business credit score is a direct reflection of how you have managed the past finances of your business. This includes all business assets and accounts as well as any loans you have taken out. It is very important to mind your credit score as this will influence how confident lenders are to invest in you. In order to maintain a good credit score, make sure you are paying your bills on time and sticking to the agreed payment terms. If you watch this on a monthly basis your business won’t be called into question.
What steps should you take to ensure good credit?
Manage your structures
First, make sure your business is set up with all the correct legal and regulatory requirements in place. If need be, consult with a legal and accountancy professional to ensure this is completely by the book. Your business should be structured well in order to ensure that it is tax efficient, with all the necessary registrations in place.
Open a business bank account
Ensure your business has its own bank account so you can collate and track deposits and withdrawals. Ensure that payments made from this account never bounce or get overdrawn. This will also help you run better accounts and it will be easier to do your taxes.
Set up trade lines with all your suppliers
If your suppliers are willing to offer good financial terms, opening trade lines with them can help you build up a good credit history. And some business owners may find it easier to use than a credit card. Ask a big box office supply store or hardware store if it has a line of credit or a store credit card if you shop there often. Use it to buy things from that store, and make sure you pay the invoice on time.
The bottom line
Building a strong business credit history is non-negotiable if you want your business to be in a secure long-term position. These steps will help you think about the bigger picture and ensure you are doing everything in your business’s favour. This will give you better access to funding and will give you a clear picture of the financial health of your business.