If you are starting a business or just want to make sure your venture has good financial health, follow these three steps to build good business credit.
When starting your own business, one indicator of success is of your business' financial status. Business credit is one of the ways that a banker can determine your financial health. Without good business credit however, growing your business is terribly difficult. Yet with good business credit, your entrepreneurial opportunties can take you as far as you want to go.
In some instances, the entrepreneurs' personal credit score is linked to the individual business' credit. Still, its best to keep the two separate wherever possible, as personal bankruptcies can be tied to business debts in the case of sole proprietorships. As well, building business credit is completely different from building personal credit, and different credit protection laws apply with personal credit than they do with business credit.
There are several steps that you can follow to help ensure good business credit:
Step One: Create Your Business' Credit Foundation
For those just starting a business, take basic steps to ensure your business appears stable to the credit bureaus. In a nutshell this entails getting the proper business licensing, having a corporate structure established and a creating a business credit profile.
What is a business credit profile? A business credit profile can assist you to build business credit without using your personal credit - essential in today's business world as previously discussed. Some benefits of having a business credit profile include:
- More available cash for your business;
- Purchasing convenience;
- Protection of any personal assets in case the business fails;
- A limit for any personal liability that the business incurrs; and
- Preparation for your business' for future lending needs.
Step Two: Build Your Business' Credit by Buying
Your next step is to borrow or buy products and services. Why? Because those that you purchase from will report your payment history back to the major business credit reporting agencies. Those agencies will then build a credit history rating for your business. Unlike personal credit ratings or FICO scores; income (or better yet income potential) plays a large role in business credit scores. For instance, the top FICO scores are reserved for the largest, most stable ventures. Your business most likely won't get a top score from the onset of operations, but with some hard work and attention to detail, your FICO score can move quickly into one of the highly-coveted spots.
Step Three: Assess Your Business' Credit
Your next step to enter into the business credit market is to have a credit assessment performed on your business. Most lenders and credit bureaus require this to be completed before issuing any credit whatsoever.
Upon completion, research businesses that will provide a new business with business credit without requiring any sort of personal credit checks or guarantee. Then once you've created a relationship with these vendors, you'll be able to leverage this business credit into further, larger and stronger opportunities.
In many states, there are non-profit organizations and/or government organizations that will help you with setting up business credit, such as Score.
