Marco Carbajo, SBA Guest Blogger
June 9, 2016
A creditworthy business is defined as a company that is considered suitable to receive credit because of a positive history of paying money back. For business owners it’s essential to not only maintain a favorable personal credit rating; it’s equally important in building and maintaining a strong business credit rating as well. “Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers,” says Marc Kirshbaum, president of Experian’s Business Information Solutions group.
Credit ratings play an important role in our everyday lives. It impacts how much credit or funding we will receive, the rate of interest we’ll pay and what the terms of repayment will be. When it comes to owning a business, a creditworthy company takes on a whole new meaning. To be considered suitable to obtain credit, a company needs to show that it can properly manage its financial obligations by having positive business credit scores. Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp. says, “Today, it takes a very proactive approach to building a strong credit score for your business.”
Lenders, businesses, suppliers and vendors use business credit reports as a risk assessment tool when determining whether or not to extend credit to a business and at what terms. A business without a rating or business credit file may find it difficult to obtain credit. So what can a business owner do to start establishing credit in the company’s name?
Here are five ways to establish credit for your business:
Take advantage of trade credit – Trade credit is the credit extended to your company by suppliers who let you buy now and pay later. Trade credit is given for a short period of time usually 30, 60 or 90 days. It’s a great way to start the process of building credit in your company’s name.
Obtain a business credit card – Business credit cards are an invaluable tool for business owners to add to their financial tool box. Statistics show that over 65% of small businesses use credit cards on a frequent basis. The use of a revolving line of credit is paramount to showing that your company can handle various forms of financing.
Use a business fleet fuel card – If you use your car for business on a regular basis why not consider a business fleet fuel card. Fleet fuel cards are mainly used for gasoline and diesel fuel at gas stations. Some fuel cards can also be used to pay for auto maintenance and expenses.
Open a secured business line of credit – To help build or rebuild your company’s credit many lenders and banks are now offering secured financing solutions. Whether your goal is to supplement cash flow, cover unforeseen business expenses, or expand your business this may be a great option to jumpstart the credit building process.
Use your business data to obtain funding – Certain lending platforms allow you to link your business’s online services such as ebay™, PayPal™, Amazon® and business bank accounts to qualify for a line of credit immediately. Although this type of credit provides your company with ongoing access to funds the repayment terms are much shorter than a revolving line of credit; typically six to twelve months.
Remember; pay all your bills and invoices in a timely manner. Although each business credit reporting agency collects and receives its data differently, the trade references your company establishes can be used on future credit applications.
By establishing a creditworthy company, a business is building a powerful financial asset that taps into the power of business credit. The fact is creditworthy businesses have a much greater credit capacity compared to a business owner that relies on personal credit alone.