According to the Small Business Administration, there are three main benefits to building and improving business credit:
- Businesses naturally have larger credit capacities than individuals. This means they can borrow more—provided their credit is sufficient to convince lenders to take the risk
- Good credit can boost company value. This makes the organization more attractive to lenders, investors, and potential buyers
- Businesses with good credit have no need to rely on their owners’ borrowing capacities. This reduces personal risk to stakeholders.
In truth, this probably understates the case for building business credit. And it’s certainly not a complete accounting of why it’s important for companies to improve their borrowing capacity. There are plenty of other reasons to do so.
Every small business needs to start building credit somewhere. Here’s what you can do to build your company’s business credit.
Establish Lines of Credit with Vendors
Start by establishing lines of credit with your vendors. Initially, these relationships will be built on trust, and you’ll likely find yourself on a short leash. That’s fine. Once you prove that you’re a reliable partner, your vendors are likely to relax their terms. Then they will allow longer, larger lines of credit. It goes without saying that you need to honor the terms of your commitments to any and all vendor lines of credit to the letter.
Apply for a Business Credit Card
…and use it responsibly. Refer to third-party reviews and comprehensive lists of the best business credit cards. Then choose the product that best fits your company’s needs.
Initially, your spending limit is likely to be modest. You shouldn’t expect to qualify for a gold-plated rewards credit card right out of the gate. As your credit improves, however, your issuer may increase your credit line. And you’ll soon enough find yourself in line for a premium business credit card with an attractive rewards program and plenty of value-added services.
Make Sure Your Information Is Current with the Major Business Credit Reporting Bureaus
Keep close watch on company information logged with each of the three major business credit bureaus. Start by opening a file with each bureau. Then check back periodically to make sure your payment histories and other pertinent information remain up to date. Even innocuous errors can negatively affect your company’s credit. This can jeopardize loan applications and other contracts.
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Make Payments on Time
Get in the habit of paying all of your company’s bills on time or early, no matter how large or small. This includes all overhead-related expenses: utilities, rent, office supplies (if purchased on credit), and the like. It also includes vendor invoices, business credit cards, and bank-issued lines of credit. Set payment reminders or enroll in autopay to reduce the likelihood that you miss a payment by honest mistake.
Avoid Credit Blemishes and Missteps
Moving forward, avoid preventable missteps that can negatively affect your credit score. Education is the best weapon here. The components of your business credit score provide a road map for what not to do.
For instance, average account age is an important business credit score factor. The older your active business credit accounts, the better your company appears on this metric. Likewise, bankruptcies and defaults can seriously affect your credit score. It goes without saying that you need to avoid these events whenever possible, and take proactive steps before the situation worsens.