Building a Strong Business Credit File

Paying your invoices on time is one obvious way to establish a positive payment history. But when it comes to building a strong business credit file, there are additional key components you should emphasize.

First, though, let’s consider what a strong personal credit profile looks like. It might consist of a few credit cards with no more than 30 percent debt-to-credit limit ratios, a mortgage loan, and an auto loan. In other words, it’s a healthy blend of credit that shows you can personally handle various forms of financing in a responsible fashion.

When it comes to your business credit file, you should take a similar approach by showing that your company can handle various forms of business financing in a responsible way. This is important because a strong business credit file affects your ability to obtain capital. It can also have an influence on the following.

• The amount of your loan approvals and what interest rates you’ll pay on the loans
• Your business insurance premiums
• The size of credit terms suppliers will extend -- and whether they’ll extend them at all
• Whether a personal guarantee is required when you apply for business financing
• Whether potential business partners decide to risk doing business with you

A mix of the following account types is the ideal credit blend you need in order to build a strong business credit file.

Suppliers: Your payment experience with suppliers (also known as vendors) shows your ability to handle short-term financing under net 15, net 30, net 60, net 90, and even net 120 day payment terms. Keep in mind, however, that balances paid in full on or prior to the due date don’t demonstrate your ability to handle revolving debt.

Credit cards: Your payment experience with revolving accounts like credit cards reveals how your business handles revolving debt. This account type, along with supplier accounts, can further display the diversity of credit responsibility your business can manage. Even if you don’t carry credit card debt and choose to pay off your balances each month, this account type will still benefit your profile because it adds diversity.

Line of credit: Having a line of credit reporting can dramatically increase the strength of your profile. It can also play a huge role in your qualifying for additional lines of credit with other banks. When a bank pulls your report and sees that you’ve already gone through the scrutiny required for a business line of credit with another lender, you’re more likely to get approval from the new bank.

Loans: This account type has a similar benefit to a line of credit, meaning that it demonstrates your business’s ability to face strict documentation requirements set by lenders. It also proves whether you can handle a set repayment schedule determined by a lender.

Leasing: A lease can enhance your profile and status in the lending community by improving your debt-to-equity ratio and earnings-to-fixed-assets ratios.

Insurance: The reporting of insurance premiums in your profile will show that your business is responsible when it comes to carrying the necessary insurance protection and making timely premium payments. Insurance may range from liability, property, accident, and health to crime, auto, workers compensation, and employer liability.

Building a strong business credit file requires this special blend of account types, which can properly showcase your business’s ability to handle financial obligations and face scrutiny, all while maintaining a reasonable debt-to-income ratio. A strong profile is the foundation of your company’s longevity and success.