Many businesses need to borrow money but even if you don’t it is a good idea to build up your business credit score. You may wish to open an account with suppliers or get on to the approved list of some of your clients. One of the main checks carried out on your business would be your credit rating.
Building up your business credit score can take a lot time and effort. Here are some tips on how to get started in giving your business credit rating a healthy boost:
Set a business identity first.
This can be done by registering your business as an LLC or a corporation. Next you need to provide all the necessary paper work required by lenders such as legal documents like business permits and licenses, financial statements, references, contracts, and so on.
You need to keep in mind that when you register your business as an independent entity, you need to have a fixed address of your business, as well as open lines of communication. (Note that P.O. Box is not acceptable as a business address)
You might also need to register your business with a credit agency so they can keep tabs on your credit ratings and scores. These organizations can act as reference when you apply for a financial loan that requires a valid credit report.
Keep a well-documented financial history
Building up your credit status will depend on the financial stability of your business. Evidencing your financial stability involves having a documented financial history. This will include profit and loss accounts and balance sheets. Businesses of any size are required to report this information anyway and you need to have if for tax returns in any event.
Pay Promptly
Prompt payment is a major issue when it comes to raising your credit status. Fail to pay on the date agreed; you get a negative impact on your credit rating if that happens.
Chase up people who pay you late
Have system in place (that you can evidence) for chasing up people who are late in paying you. This may involve letter, email or phone calls.
Consider a Business Credit Card
Many small businesses are now opting for business credit cards to improve their ratings. One reason for this is that these cards sometimes have promotions and can offer reduced interest rates and APR, which can be quite useful for making prompt and affordable payments.
Check Credit Rating Reports
Credit reports are produced by credit reference agencies based on information about your business which is in the in the public domain. In essence the report is on the likelihood of credit given to your business being repaid on time. You can check your own credit score by purchasing a credit report. You should regularly review your credit reports to see if anything has changed. If there are any problems deal with them quickly. If there are any errors report them immediately to the corresponding agency. This will have a positive impact on your credit rating.
Another way to improve your credit status is through credit lines. Many financial institutions, like banks, are now offering short-term lines of credits (LOC) for small businesses, with easy payment terms.
Make sure that your company reporting is up to date
Credit reference agency will mainly use the documents that are in the public domain to rate you, so you must file regularly and update any changes. Make sure you meet required deadlines as late filing is often seen as a sign of financial difficulty.
Be prepared with information
If your business is not incorporated then you may be asked for financial information directly. Have a standard up to date pack of financial information of interim accounts and trading figures ready to provide. A successful trading record will help.
Have your Personal Finances in order
If you are a new business and you do not have a track record Lenders may wish to take your personal credit history into account. No-one will want to lend your business money if they think it will be used to clear up problems in your personal finances
Have Clear Terms and Conditions when Conducting Your Business
Make sure that you are aware of the conditions to which you are committing your company when conducting your business activities. This will demonstrate that you know what you are doing and serve to help allay fears around business risks.
If you pay attention to these tips they should serve to provide you with a good basis for building up your business credit score.