There is a number one rule in building business credit and that is to pay your bills on time. This shows other businesses, particularly investors and suppliers that the process of business is being carried out the way it should be. But even more importantly it allows banks and financial institutions to see for themselves whether or not the business is operating under good financial parameters.
When a bank or other lending institution receives a request for a business loan one of the first things they do is check the business credit score with either Experian Business, Equifax Business or Dun and Bradstreet. The reports a creditor can buy from these companies will immediately identify any outstanding business liabilities as well as showing how well a company has been doing to pay their bills and keep their suppliers happy.
The other important factor in building business credit is to for the owners or principals of a business to look after their own personal finances. When a bank lends money in the form of a business loan or business line of credit they have to satisfy themselves that the corporate officers of the business are themselves creditworthy. In fact under the Small Business Administration guidelines this is one prerequisite for banks to access funds under the Small Business Act.
Another element in building business credit is to keep good financial records and have a solid accounting system that not only tracks accounts payable and accounts receivable, but is also capable of making forecasts and projections about financing and cash flow problems before they arise. One of the major reasons that small businesses fail is that they do not properly track their financial situation so even if a business never has to borrow money, it will need to be financially well organized just to survive.
A final way in building business credit is to create a business credit track record. A business can do this by borrowing small amounts of money or arranging limited financing using personal guarantees. This shows the banks that a business is not afraid to invest in itself and is prepared to back that up with their own personal monies. Just like getting a car loan and making all twenty four payments on time at the bank will improve your personal credit so too will meeting your financial commitments in a business arrangement improve and build your business credit.
Building business credit is a process that will evolve over a period of time. Just staying in business past the first two years will improve your business credit outlook. So too will keeping your suppliers happy and ensuring that your financial recording systems are accurate and up to date. The longer that you pay your bills on time the greater your business credit will grow. Look after the small things in your business and building your business line of credit will look after itself.
