The accessibility to credit for a business is essential in that it provides a source of funds in instances of low cash availability. Most businesses want to be able to borrow money when the need arises, at the least risk to the business. But wanting to get credit for your business and actually getting it can be two different things.
It is therefore an important exercise to build a business credit profile. In most cases however, it is also necessary that a small business has both good business credit as well as a solid personal credit on the part of the owner.
Your first step in the process of building the profile is to establish your business as a separate entity, distinguishing your business credit profile from your personal credit profile and ensuring a consistent identity.
Secondly make sure you have a well written business plan, which includes all the sections found in a business plan as well as the necessary financial details. Credit providers are often very interested in your business cash flow in relation to expenses and your total debt in relation to your earnings. Your initial goal is to establish a business on paper, with all the details already in place.
Establish credit with your suppliers by opening accounts for the provision of small expenses i.e. stationary. This preferably with businesses that report their credit activities to Credit agencies. Further means, would be to seek loans from government agencies, paying back such loans on time will go a long way to building a good credit profile.
The methods of establishing a good profile are fairly simple and for small businesses they are not unlike the guidelines for improving your personal credit rating, they may be:
- Pay you suppliers within terms
- Limit the number of Business credit cards
- Establish your business with suppliers who report credit profiles
- Maintain thorough, up-to-date financial records
For Small business owners a good business credit profile has added benefits. Being listed with a credit bureau gives your business a better reputation and encourages lenders to loan money when it is needed. The lenders may contact the business credit bureaus and confirm that your business is a reliable business that values making payments on time.
It’s also allows the business owner to monitor the business credit rating, as it grows paving the way for success and a prosperous future.
Business credit is a very useful tool in the small business tool kit, however not many owners make it work for them. Small business owner should take this opportunity to grow their Business credit profile and reap the rewards that this offers.
