Starting a new business is not easy. As a new business owner, you have a lot on your plate. Establishing your brand or promoting your products can be exciting; it also gives you the right amount of challenge. However, you shouldn’t forget about the seemingly boring and frustrating aspects of a new business such as building your credit.
Your business’s credit score can make or break your company’s growth and success. A good credit score can signal to banks, financial institutions, and potential business partners that your company is financially stable and healthy.
This article shares the basics of business credit and its importance along with four tips on how to start building credit for your new business.
Business Credit And Its Benefits
Business credit is a significant indicator of how healthy and reliable your business is in terms of finances. As with personal credit, business credit shows a summary of your business’s financial history, demonstrating its ability to repay its loan and financial responsibilities.
This is an important financial tool that helps your business thrive and is primarily used to help you qualify for business loans and other financing options. In addition, business credit is a critical tool for establishing relationships with vendors and other businesses. Moreover, it can serve as a useful bargaining or negotiating tool when discussing prices with other companies.
In short, without solid business credit, your business may struggle to find loans, apply for credit cards, or build relationships with other businesses and vendors that can be instrumental to its success.
4 Ways To Build Business Credit
Now that you’re convinced of the importance of good business credit, how do you build one? Here are some tips to try.
- Opt For Credit Builder Loans
For businesses with no credit or have a limited credit history, a good credit builder loan like the ones listed at https://digitalhoney.money/best-credit-builder-loans/ can be a great way to build your credit scores. Also known by different names such as ‘Starting Over Loans’ or ‘Fresh start Loans,’ credit builder loans are offered by smaller financial institutions such as community banks and credit unions.
If you’re approved for this type of loan, the amount you borrow will be held in a bank account while you make payments. Since payment history is a significant credit scoring factor, on-time payments for these loans can help significantly improve your business credit scores while also building your savings.
Depending on the provider, your loan payments are reported to at least one major credit bureau. However, it’s best if you can find loans that report to all three major credit bureaus for a more significant impact on your overall credit.
- Work On Your Business Foundation
The best way to build your new business’s credit is to properly work on establishing your business first. There are several things you need to do.
For one, you need to obtain your employer identification number, which is essentially your company’s social security number. You also need to get a Data Universal Numbering System number, which is used to identify the physical location of your company. These two numbers are critical since business credit bureaus use them to identify your business’s financial payments and activities.
In addition, you need to open a business bank as well as obtain a dedicated business phone line. If possible, you should also form a limited liability company to separate your personal credit from your business credit.
- Apply For A Business Credit Card
A business credit card is another powerful tool to help build your business credit. Plus, it’s easy to do. You simply need to open a company credit card and use it every month for paying vendors or purchasing business essentials.
Be sure to look for a credit card that suits your company’s needs. Some credit cards provide a rewards program and benefits, which can be helpful to business owners. Keep in mind that your credit limit may be low since you’ve just started your company. Don’t worry though, as you establish and build your credit, your limit should also increase.
- Pay On Time
Nothing builds credit faster than always paying on time—whether it’s your office’s bills or orders from vendors. After all, payment is the most basic concept behind credit building.
So when your bills come, pay them right away. If you can, pay them ahead of time. By doing so, you’re showing that you’re financially responsible and make good on your financial obligations such as debts and loans.
As discussed above, a good business credit score is essential in creating a financially stable business. That said, new businesses don’t begin with a good credit score. You’ll need to build it from the ground up. So make sure to follow the aforementioned tips to establish a strong business credit that can make your company look appealing and healthy, financially speaking.