Most business owners use credit to finance their operational monetary expenditure including factors such as buying supplies, replenishing the stock, payment for conferences and other important issues. Business credit can be built through the use of business cards. Having a good business credit is very instrumental in the acquisition of other financial options for your business. It is recommended to build good business credit from the initial stages of developing your business.
Understanding your Credit Score
Business credits are rated by business credit bureaus which indicate whether your credit rating is good, fair or poor. The scores range from 0 to 100 depending on your creditworthiness. It is advisable to score at least 75 and above. In order to maximize your financing avenues, it is recommended to monitor your business score and ensure that it remains within a healthy range.
When registering your business it is advisable to register it as a limited liability company. In this case when seeking financial assistance in form of a business loan, they will use the company’s credit rating to determine its creditworthiness. This is unlike when you register it as a partnership or a sole proprietorship as in this case financial institutions use your personal credit rating. When applying for a loan as a limited inability, you are required to use the federal or employee identification number that is issued by the Internal Revenue Service.
Credit Card Usage
You should use your business credit card only for purchasing business related products. Do not use the business credit card on personal expenditure as this demonstrates to the IRS and other financial creditors that you don’t value your business credit rating.
Registration with Credit Bureaus
In order to build business credit and prove the existence of your business to other credit institutions and the IRS, it is imperative to register your business with the Business credit bureaus. It helps them in documenting and reporting your credit details in future.
As a way of building your business credit history, request the credit providers to report your payments. This request must be made because unlike with personal credit, business creditors are not mandated to report the payment of your business. Additionally, request them to refer you to other creditors by reporting your company’s credit payment.
You should always spend within your means. Avoid buying things that are not necessary thus stretching the expenditure of your credit card. Prioritize your expenditure and concentrate on necessities only.
You should always ensure that you submit the credit card payments on time in order to create a good reputation with the creditor. Late or missed payments taint your credit record and hamper your chances of accessing credit for your company in future.
- Entrprenuer.com: The ABC’s of Business Credit
- Mashable: How To: Establish Business Credit
- Small Business Administration: How to Build Business Credit for Your Start Up
- Wall Street Journal: Three Best Ways to Build Business Credit
- Companies Incorporated: What is Business Credit?