Establishing a credit history as a business will serve you well in many ways. Excellent business credit can help your company qualify for lower interest rates and better terms with lenders, insurance providers, and vendors. It can even help you get large contracts for your company.
Lenders’ willingness to provide financing to a business is based on their belief in its ability to meet its financial obligations. Credit in the corporate world is often given a score, just like personal credit. When applying for business loans, it helps to have a high credit score. The cheaper your interest rates on loans, the higher your credit score should be. A high credit score also increases your borrowing potential.
What Role Does Credit Play in a Business?
Your organization’s health and growth depend on your ability to establish and keep an excellent credit standing. A higher-than-average business credit score means better terms from banks and insurers. You’ll be able to negotiate with larger institutions and secure better terms for your finances.
You might not be happy with the results of a check of your company’s credit score. When starting a business for the first time, you may wonder what steps to take to build credit. If you need assistance establishing business credit, where can you go? What is the time frame for establishing business credit? Fortunately, various options exist for demonstrating and enhancing your company’s financial reputation. The top five are listed below.
1. Establish a Corporate Bank Account.
A business bank account will serve as a financial foundation for your company. Make use of your employer identification number (EIN) and the full legal name of your company while establishing this business bank account. Your company’s timely bill payments can be verified directly from your operations in this method.
2.Get a credit card for your company.
Do you still make business purchases with your credit card? Mixing business and private funds creates organizational chaos and prevents you from establishing separate business credit.
Credit card firms are generally the first point of contact when establishing business credit. You can choose between a secured and an unsecured company credit card. The primary distinction is that a deposit is usually necessary to obtain a secured credit card. This may be a viable choice if your company has a limited credit history or is just starting.
The most excellent strategy to develop business credit without interrupting regular operations is to use a business credit card (secured or unsecured) and pay the amount in full and on time every month. Using a program that can raise your credit score when making large purchases like office supplies, plane tickets to meet with clients, or a large merchandise order makes sense.
3. Make Prompt Payments
Payment history is the most crucial factor when determining a company’s creditworthiness. The number of days a payment was late is reported as “Days Beyond Terms” (DBT) on a company’s credit report. If your payment date is day 32 and your vendor’s conditions are “net-30,” you will be listed as 2 DBT. That’s right; even a day or two late can harm your company’s credit rating.
If payments are made on time or even ahead of schedule, it can help a company’s credit rating.
What’s the big deal here? The most critical element in establishing a company’s creditworthiness is the company’s payment history.
Stage 4: Request a DUNS Number
You’ll need a DUNS number before applying for a business credit score with Dun & Bradstreet, one of the three major business credit bureaus. A DUNS number can be obtained at no cost through Dun & Bradstreet’s online form.
Potential lenders and partners will evaluate your company’s credit history and financial standing using this nine-digit identifier. You’ll also need a DUNS number to apply for a government grant.
A unique identifier is not required when working with Experian, Equifax, and the like.
5. Get loans from institutions that participate in credit reporting.
Even though on-time loan payments might improve your business credit, not all small business loan providers report to business credit bureaus. Before you take out a loan for your small business, determine if the lender reports.
Banks typically report to credit bureaus; moreover, you must have stellar credit and have been in business for a while to qualify for a loan from a bank.
On Deck, Lending Club, Funding Circle, and Bluevine are just a few of the many online small-business lenders that report to business credit bureaus and make it easier to get a loan if you’re a new firm or have bad credit. However, Smart Biz, Fund box, and merchant cash advance providers do not share information with the government.
Establishing a solid credit history for a company takes time. However, if you take a steady and systematic approach, you should see an increase in your score within a year.
Following the five actions above will help the bureaus acquire information about your financial credibility more quickly. You can get better loan rates in the future if you make certain business credit bureaus know about your company’s excellent track record.
