Once you have a business up and running, it’s important to build your business credit and finances correctly. Your budding company will need a good credit score to receive approval for financing on favorable terms and will help you when getting interested investors or more supplies you need. Here’s how you can start building your business credit, even if you’re just starting out.
Make Your Business a Separate Entity
Your business can’t build its own credit without first separating it from you personally. Why can’t you just use your personal credit? There are two big reasons. Most importantly, you don’t want any potential issues with your personal credit to affect your business. You also don’t want more hard inquiries on your personal credit score, which can happen if you keep your business tied to your personal credit.
It’s simple enough to make your business a separate entity. Form an LLC or incorporate it. You can do this in your state or elsewhere if you’d like to take advantage of more favorable business laws outside your state.
Obtain a Business Credit Card
When your business is starting out, securing a business loan is difficult. It’s much easier to get a business credit card. Once you have this you can use it to pay your expenses and build up good credit. When you use your card consistently and pay it off every month, you’ll build business credit and look better to lenders on paper. Many business credit cards also offer either cashback or rewards, so you can even earn a return on your spending.
Set Up Supply Lines
If you have suppliers you use and work with consistently, set up lines of credit with them. Request that they report the payments you make to the credit bureaus so those payments will have a positive effect on your business’s credit score. This could even be for third-party services you utilize like a personal injury lawyer, advertising agency, and more. Keep up to date on payments you make every month to improve your score.
Take Care of Your Business’s Credit Score
When you have a business credit card and supply lines, you can take care of your business’s credit score the same way you would your personal credit score. The two most important factors are still payment history and credit utilization. Keep your payment history strong by paying all your bills by the due date. Set up automatic payments if you have trouble with this. You can also get reports sent to you to make sure you’re doing everything you can to keep a good score.
Your credit utilization is how much of your available credit you’re using. Try to keep this below 20 to 30 percent for the best results. For example, if your business credit cards have $10,000 in available credit, don’t let the balances ever total more than $3,000.
Building your business’s credit score takes time, but it’s well worth the effort. Fortunately, the things you need to do to get a high business credit score are all smart financial habits you should be doing anyway. Use these tips and make sure you stay on top of new expenses as they arise.