As an entrepreneur, nothing is more valuable to you than a healthy cash flow. Money greases the wheels of your business, and truly makes magical things happen. If you are interested in taking a leap of faith, you’re going to need to get your ducks in a row. Business credit is one of the most important resources at your disposal. Imagine if you had dreams of building a production facility, but you were limited by a paltry business credit line of just $10,000?
Even with a profitable business up and running, you may find it difficult to establish business credit. Often, the success of your business and the credit rating of your business are two separate issues. Many folks know exactly how to nurture their personal credit scores and personal trade lines but are hopelessly lost at sea when it comes to managing their business credit.
Can You Afford the Business Loan?
Rather than risk having your lines of credit cut by a bank, it’s important to keep your personal credit lines active and available. There are benefits to using small banks (personalized service) and big banks (more services). You may even opt to go with a non-bank lender and enjoy a wide range of credit resources and expedited offers.
Personal loans, business loans and other credit lines are particularly useful, but it’s important to be able to service those loans. One way to gauge your ability to repay these financial obligations is a paycheck calculator. This evaluates your gross earnings, health insurance premiums, allowances, retirement plan, taxes and deductions, to determine a net amount that you would like to receive.
Steps you can take today to establish your business credit:
Get started as soon as possible when it comes to building business credit. The last thing you want is to be in a situation where you desperately need credit and you don’t have it. Once you start your business, you should open a small line of credit. It may take up to 2 years before banks and financial institutions feel comfortable enough to offer you a respectable line of credit.
Fortunately, there are several workarounds, including bank loans or business credit cards, perhaps even store-based credit. You may be required to sign for your business credit line in your personal capacity.
On the subject of credit, you will always want to be mindful of your personal credit score. Many business owners assume that business credit lines are separate from those of the owner. This is true to a degree. Most small and medium businesses will need to provide some sort of surety from the owner to qualify for the business loan. That’s why it’s so important to be mindful of your personal credit score at all times. If you are reckless in the way you manage your finances, it is unlikely that banks and financial institutions will view your business any differently.
A decent credit score to have when applying for a business loan is 600+, but the higher you go, the more favourable the loan terms and conditions. There are many ways to build a credit score, notably making regular payments, managing your credit utilization ratio, limiting the amount of accounts you open, and generally being fiscally responsible. Moneylenders are known to scrutinize the personal credit profiles of anyone who has more than a 20% share in any business.
Credit scores in the United States are being recalculated according to a new scoring system in 2017. The VantageScore model will result in movements of up to 20 points for certain individuals, and it’s important to stay abreast of how the new scoring system could impact your personal credit score.
Establish relationships with bank and non-bank lenders
Once you start building your credit, you will have a history with the bank or non-bank lender. This is invaluable as a small business. You may not even need to use the credit line made available to you, but it’s better to have it in the event that you do. One of the most useful tips when establishing business credibility is setting up a profile with D&B (Dun & Bradstreet) this credit reporting agency can assist you in building a credit profile.
If you’ve had credit cards for any period of time, you know that banks routinely assess client accounts. If your account has been inactive for some time, the bank may close your line of credit. This is entirely at the discretion of the issuing provider. To avoid this, try to have multiple lines of credit available – that way if things sour, you’re still safe!