Our goal at Lending Valley is to provide all small business owners access to the best loans possible for their business. You can rest assured we will get you the best rates in the market!
For both new and already established small businesses, understanding the best ways to obtain business finance and credit can be tricky waters to navigate.
Having a good business credit score can allow you to elevate your business to new heights, that otherwise would not be possible without the addition of funds gained through business loans.
Taking out loans through a business (with a good business credit score) will allow you to borrow useful capital, without risking any personal assets, or your personal credit rating.
Building a solid credit profile for your small business, that demonstrates diversity in accounts has the potential to skyrocket your pressing and future business plans.
Business credit scores are no different from the personal reports that people build over time. The main difference, of course, is that the score sits with the business and does not represent the business owner.
Business credit scores are calculated through major business credit bureaus, such as Equifax, Experian and Dun & Bradstreet. These companies keep track of a business’s credit information, translating it into a score that money lenders can reference.
The score is basically a point marker that suggests how likely the business is, to be able to pay back and money borrowed.
A business credit score is built in a similar way to a personal score, but there are some specifics:
The very first step in establishing good business credit is to properly establish your business.
Even though you might already be trading or open for business, it does not that you are on the radar of the major credit bureaus, which is obviously vital for your business to stand the chance of building a score.
To put your business on the map is a simple task, so it is best to do it sooner rather than later.
Every professional, trustworthy, credible business should have a business telephone. Obtaining a business only telephone number and having it listed in a directory is an initial step from taking your business from small town ‘sideline’, to properly established business.
You will also want to stop your business funds running through private accounts and instead open a business bank account under the legal trading name of your business.
This step puts you in front of the eyes of credit rating bureaus and makes your business fully legitimate.
In the business world, the better the working relationship (and line of credit) that you have with vendors and suppliers relevant to your industry, the better.
Developing this trust and building a track record of paying invoices on time will encourage vendors and suppliers to give you some flexibility when you have to pay for the goods or services that they supply.
Avoiding upfront payments or net-7 invoices will allow you to keep more money in the business and maintain better accounts.
Cash flow can make or break a business, essentially overnight.
Having reputable businesses trust your own business to pay invoices a month or even 2 months after the date of delivery shows to the bureaus and lenders that you are trustworthy; and that you will most likely always have money in the bank.
An EIN number is 9 digit number that the IRS issue to businesses for tax reporting and filing purposes.
If you run your business as a sole proprietor, you will only need an EIN number if you:
Acquiring an EIN number is a straight forward task that can be done directly through the IRS website.
Having such a number further establishes your business as a trustworthy company that contributes to US taxes.
This is one of the most black and white rules when it comes to maintaining and building a credit score for any business.
Paying bills on time, or if possible early shows that your business is reliable and can effectively/efficiently manage its finances.
Any missed payments, late payments or accrued debt can lead to a black mark on your business’s credit history; making it difficult for the business to borrow capital or apply for credit in the future.
The importance of paying supplier and contractor invoices are imperative to building your business credit score, simply missing a phone bill or staying in your overdraft for too long can set you back to square 1, and make it even harder for you to build back up again.
Credit cards often have a bad reputation, but having a business credit card that reports to the major credit reporting agencies, is a sure way for your business to build-up its credit.
Credit cards are the most accessible form of money lending for any individual or business. Credit cards allow you to spend relatively small amounts, which you can then pay back at a later date.
Many credit cards offer interest-free periods in which there is a 0% APR on repayments of spendings in the first year or discounted interest on repayment made on spending in the same month.
Another great option is credit building cards. These credit cards are specifically designed for building business credit scores over a set period of time. This can be a great first step in building business credit for start-up companies.
If you have not done so already, you should most definitely consider making your business a corporation but getting it incorporated.
By becoming an Inc. Business – you will essentially separate all personal ties from the business, and allow its finances to run as a separate entity.
If your business is not Inc. You run the risk of any business financials affecting your personal ones as they will still be legally attached.
This also works the other way, being Inc. means that your personal finances can not affect the businesses, which is good news for money lenders, because it means that they do not need to delve into your personal affairs and spending habits.
This step is a little redundant, as this should happen as products of carrying out the steps above, although, it is still equally important to mention.
Opening business credit cards, a business bank and Incorporating your business will completely sperate business expenses from your own personal finances; which is a good thing in the eyes of the bureaus.
Having a clear separation of expenses also makes tax return day a far easier task and will make filling for return more efficient.
Creating plenty of distance between yourself as a business owner and the business itself is key in building a good business credit score.
Although the system is pretty accurate, and the bureaus are usually spot on when it comes to calculating your business’s credit score, sometimes mistakes can be made.
Regularly keeping track of your score and looking out for any errors will allow you to file for dispute should any issues arise unjustly.
Up to 25% of small business owners report significant credit report errors every year, which is quite an alarming number.
Keeping track of your score will also allow you to monitor how well you are doing in terms of progress, and how likely you are to be accepted for certain applications before you even contact the lenders.
Some sites where you can check your credit score also offer some useful insights into how you can best build up your business credit score, specifically tailored towards the business’s financial history.
Once business credit has been established, the next step to take is to strive towards building strong and secure business credit.
Most of the previously stated steps will build a strong business credit over time, but the 2 most important to pay attention to are:
This point can not be reiterated enough, paying on time is an absolute must and paying early can be very advantageous. By paying credit off early, you can essentially be rewarded with extra credit and a higher score which has a snowball effect on your business’s credit rating.
Paying off credit late or missing payments is a sure way to see your business score tumble and as mentioned previously, once this happens it can be incredibly difficult to build your score back up.
If you find that your business is at risk of cash flow issues which may lead to missed payments, it is always best to contact your lenders and see if they can offer any kind of grace period, or set up a payment plan that you can use to spread the costs further.
By being honest and explaining that the business is willing and wanting to pay, you might be able to avoid black marks on the business’s score reports.
The second most important step for building good business credit is making sure your accounts are reporting to the various business credit agencies.
It is all good and well having various streams of credit put in place as a way of building your business score, but if they are not reporting this information back to the commercial credit agencies, then all that energy will be doing nothing for your business credit reports.
By using vendors that regularly report to most, if not all of the commercial credit agencies is the best way to ensure that your credit score is regularly updated and an accurate reflection of your business’s financial situation.
make sure that you regularly check that your score is being updated by referencing all credit agencies.
Establishing a strong business credit score will essentially help you to scale/grow your business. All banks, creditors, and investors rely heavily on how good your business credit score is, and the better it is, the more likely you will succeed in applications for capital.
Having more capital and available funds is a major key to success for any business, big or small. Insufficient or postponed finances are one of the most common reasons business fold or goes into administration. Money is the most essential element in the longevity of all trade.
By establishing good credit you will be putting your business in the best position to be considered for better interest rates, receive more favorable loan terms and allow you to negotiate more flexible payment periods with vendors/suppliers.
Separating business financials from those of a personal nature is equally important as building your business score.
By dividing your business credit from personal credit history, you will allow your business to run off of its own merits, and not allow it to ever be affected by any misfortune that might happen in your private life.
Separation of finances also has useful benefits in terms of simplifying tax returns; and should the absolute worst happen and your business be forced to enter administration, none of your personal finances, assets or credit ratings will be affected.
One of the most prominent pleasures of having a great business credit score, it the ease in which you can qualify for business loans. Lenders are often reluctant to offer money lending to businesses with poor credit scores, or businesses that are linked to individuals with poor personal scores.
This is out of concern that the business/borrower will not be able to make payments on time, or possibly at all. Having a proven track record (that is reflected through a business credit score) is the only way to convince lenders that the business is trustworthy and can properly manage its finances.
To further delve into the last point, money lenders will offer better loan terms and agreements that will be favorable to the business should it have a better credit score.
This could manifest itself in the way of lower interest rates, larger credit limits or possibly even interest-free periods.
Better terms will always benefit the business, and will usually save it money and make it more profitable in the long run.
Having good business credit will allow you to separate your personal and business financial obligations.
Business debts will only ever be reported on your company’s credit reports should the business be regarded as a completely separate entity. This can save your personal credit rating from being influenced by any financial griefs your business may face, and vice versa.
Once great business credit is fully established, it will not only be the banks/credit lenders that will be showing you some more trust; suppliers also will be more willing to offer you better payment terms for goods and services.
When making business-related purchases, having the option to pay off the invoices in installments, or at a later date, can have a positive effect on cash flow and allow the business to maintain better books.
Maintaining better books holding more money in the bank will also have a positive effect on your business credit reports.
Even if your business is doing very well, and is not in need of any financial assistance, it is still important to have a good business credit rating in case you wish to expand/grow the business.
Making changes or improvements to any business, especially expanding can be incredibly costly, so instead of taking the money out of the business, using a lender or investor can lessen the risk, and make the process less taxing on business financials.
