If you own or plan to start a new business, building a positive business credit profile should be a top priority. A good business credit history will be one of your most valuable assets. It can help you buy inventory, lease equipment, hire staff — and even give other companies a reason to do business with you.
There are some important factors to bear in mind, however, as you go to work building your business credit profile.
First, in order to qualify for business credit, your new venture must be either a limited liability company or a corporation. Make sure you establish your business accordingly.
Next, examine your business plan to see that it spells out all your financial goals and provides as much detail as possible about ways you plan to use the credit you seek. List any permits and/or licenses you hold that qualify you to run your business. This information will be encouraging to any lenders or creditors you approach.
Once you’re ready to look for financing, you have a lot of options, though not as many as you might have had a few years ago. Think about applying for a loan through the Small Business Administration. This can be a great way to build a credit line, provided of course that you make your payments on time.
You might also seek financial backing from an angel investor — independent investors can help you build your business credit profile more quickly than other methods. It’s also a good idea to apply for business credit cards, though again, these aren’t as readily available as they once were. If you can get the cards, maintaining low balances and paying them in full will help you increase your credit score.
Once you secure financing, it’s important to go out and start purchasing goods and services. The vendors you deal with will relay your payment history to the major business credit reporting agencies. In turn, these agencies will create a credit history rating for your business. Bear in mind that as a new business owner, it’s unlikely you’ll earn a super-high credit score from the get-go. However, if you’re able to pay your bills on time you’ll eventually build your FICO score to an impressive level.
Review your credit profile regularly. Contact credit bureaus like Dun & Bradstreet to obtain your business credit report and check for any errors or omissions, since this information will be shared with vendors and prospective clients. Sometimes an entrepreneur’s personal credit score is linked to their business credit score. However, it’s best to keep the two separate if possible. In the case of sole proprietorships, personal bankruptcies can be tied to business debt. What’s more, building business credit and personal credit are entirely different — and different credit protection laws apply.
Finally, it’s important to know that most states have nonprofit and/or government organizations that can help you establish a positive business credit profile. The Service Corps of Retired Executives — a partner of the Small Business Administration — is a good place to start. It’s a national association dedicated to helping small business owners launch and grow their businesses. SCORE has 364 chapters in the United States. Last year alone, it assisted more than half a million businesses.
Susan Konig is a freelance writer in New York. She has been writing about finance for 15 years, for publications including Crain’s New York Business, The New York Times, and Registered Representative, a national publication for financial advisors.