6 Steps To Build Your Business Credit & Get A Better Loan

Your business credit is an asset of the business. If you sell your business, the business's credit score goes with it. Having an excellent business credit increases it's net worth

Posted on 2019-07-24 by Ron Zaguri in Financial // 0 Comments

Los Angeles, Ca, 2019-Jul-24 — /EPR Network/ —

Before we dive into the business credit pond, there are a couple of things you should understand about how business credit works:

While individual credit rating varies from 300 to 850, business credit rating varies from one to 100.
For sole proprietors and unincorporated businesses, your individual credit is your business credit.
For LLCs, S-Corps, Partnerships, and C-Corps, your business is separated from your personal credit.
The 3 primary business reporting firms are Experian, Equifax, and Duns & Bradstreet (didn’t see that coming, did ya?). These firms collect info from financial institutions and vendors that work with your business.

Step 1-Divide & Conquer

For sole props. Separating yourself from your business is the first step.
Doing this assures that your business finances and credit rating are separate from your individual credit history. That indicates your business can start developing its own credit.
That is good for people with a weak personal credit score because it allows you to start from a clean slate.
For individuals with good personal credit score don’t worry. You can still get a head start by co-signing a loan for your business.

Step 2-Put Your Business Out There…

Get a dedicated business phone line and lease an office or store and list them online. This step is all about showing that your business can stand on its own and that you don’t work out of your garage. Plus, when you have a dedicated phone line and address you can register with business directory sites, which credit agencies use to collect info.
Think about listing your business and telephone number with the Better Business Bureau, Yelp, Yellow Pages, Chamber of Commerce, etc.

Step 3- D.U.N.S

Duns & Bradstreet, one of the most widely known business credit agencies. Registering for a number is totally free! and when you do so, you open a credit file with the agency. While there’s no requirement to have an account with Duns & Bradstreet, most lenders use Duns & Bradstreet credit rating when reviewing your loan application.

Step 4- Check for Mistakes

If you’re already an incorporated business, it’s a good idea to review your business credit report for mistakes before you carry on to the other steps. Even if you haven’t started developing your business credit history, Experian and Equifax use public records to open a business credit report for you. If you’ve never looked at your business credit report, you should review what’s in there and scan for errors. Credit report mistakes take some time to repair. It would be a bummer to go through all these steps just to find that an error on your credit report is dragging down your score!

Step 5- Open a “Line of Credit” with vendors and suppliers

Opening a line of credit with your vendors, also known as a tradeline, is one of the most crucial things you can do to build your business credit. Info about your trade lines shows up in your business credit file and affects your credit rating. Very Important to make sure these vendors report your payments to business credit agencies. When inquiring about a line of credit ask if they report your payments. Ideally, you want to show 3 to 5 trade lines reporting to business credit agencies.

Step 6-Apply for Business Credit cards, short term loans, Cash advances and Lines of Credit

Similarly, to personal credit, the credit agencies like to see some history of paying off, successfully, debt. For business owners that just started building credit, you might not get the best deal (from an interest POV). But, as responsible business owners understand that sometimes an investment is required in the long run. A few things you will want to make sure is that the lender you work with will report to the proper credit agencies, that you won’t pay any fees and we recommend using that funding avenue to invest in items in your business that will generate a quick and additional income (like inventory, marketing or expansion) since those type of loans usually don’t exceed the 18 months life span.

In Conclusion…

While building your business credit does require time, Studies show that after a while many people that commit to the process report that they sometimes do it just for the sheer pleasure of watching your credit grow.

Think about this process as an investment for the future of your business. Business loans are extremely hard to obtain in good terms due to the high risk for the lenders. SBA loans require that your business credit will be not short of excellent!
Rather of amount, choose quality. Choose an initial Loan (cash advance, lines of credit & short term loans) that you’ll stick with, offers you future benefits (pre-payment discount, better loans structures after creating a relationship, etc.) and above all, reports to the right agencies!