Whether you are an entrepreneur at the helm of a startup or a seasoned small business owner looking to expand, the importance of good business credit cannot be understated.
From equipment finance to real estate loans and credit lines for operating expenses, at some point your business will most likely need to borrow money from a business lender.
Here are some key steps you should take to establish or strengthen your business’s credit.
Have a Plan
Every entrepreneur and small business owner has probably heard this many times over, but it still rings true. Having a solid plan for your business is a key step for future success.
Planning your strategy to build credit should be no different.
Speak with your accountant and banker about options available to you to start building your credit now, so you have borrowing power and leverage later when you are ready to move your business to its next stage.
Open and Use a Business Credit Card
Just like personal credit, your business’s credit is earned over time as credit reporting agencies build a profile of your risk factors and credit worthiness.
Opening a credit card for your small business is a great way to build credit from the start while also providing a line of credit for operating and other business expenses.
Be sure to use the card wisely and limit it to business expenses only. Overspending on your credit card can have negative impacts to your business’s credit score if you can’t keep up on the payments, just like a personal card can, too.
If your business is in a position where there are multiple buyers or employees piling up travel expenses, consider adding them to your account to increase rewards.
Use Net-30 With Vendors
Using vendor credit, or net-30 terms, with your vendors also helps build credit for your business. Most vendors report back to commercial credit agencies, so just like business credit cards, it’s important to have a good accounts payable process and honor the terms.
While you may not be able to get net-30 set up when your business is in its infancy, establishing good standing with your vendors can make it easier to transition to a terms account as your relationship and rapport grows.
Start Small to Achieve Bigger Goals
When it comes time to consider business loans, don’t feel like you need to put all your effort into securing one large loan.
There are several loan options for small businesses, and its okay to have more than one at a time, provided you have the revenues and cash flow to pay them back on time.
For example, there are many great options available to finance your small business’s needs either directly from your lender, such as term loans or lines of credit, and low interest government-backed loans through the U.S. Small Business Administration (SBA). You may be able to secure different loans from different sources to best meet your needs.
Check with your lender for options available based on your business’s needs and remember to come to the table with a solid plan for your business’s short- and long-term future. Having a plan can go a long way in helping your lender help you determine the right path for your business.
Helping you boost your financial intelligence.
Read our financial resources from your friends at WSFS.