Let’s face it, your personal and business credit is essential to your financial health as a small business owner. It’s important to understand this and learn as much as you can about building and maintaining a good credit score for your business. Having a business credit score of 75 or higher through Dun & Bradstreet is essential and can help you especially when trying to get lines of credit with vendors. While cash loans, such as an SBA loan, micro loan or personal signature loan will require a review of your personal credit – your business credit score will help also in making a final decision.
Much has changed in the business credit industry today. It used to be that you didn’t need to always use your personal credit history when applying for small business loans or lines of credit, but that’s not the case anymore. You’ll need a personal credit score of at least 680 and again, a D&B score of at least 75. If your personal score is less than 680, it’s time to start working on it right away.
Building your business credit is not something that can be done over night, but it is a gradual process that occurs over a period of time. As your business grows your business credit worthiness should get stronger and stronger.
A good business credit score will assist in getting business loans, lines of credit and minority or woman-owned certified. Your business credit worthiness is an essential part of growing your business and it also shows your leadership ability as the owner or CEO.
Below are 10 ways you can get started in building your business credit:
1. Consider changing the structure of your business to a corporation, such as a Limited Liability Corporation better known as the LLC. This is the most common structure that many small and micro businesses are using. If you are not certain of the structure for your business make sure you discuss it with your accountant or attorney.
2. Apply for a business checking account. This is an essential part of the process in legitimizing your business. It will be important for you to keep all of your expenses separate. This is very important to do if you’re incorporated especially. It is also a plus to keep a minimum balance of $2500 in your account at all times. This helps in establishing your credit worthiness.
3. Develop your business plan. Many times when applying for a loan or line of credit you’ll be asked for your business plan. This normally causes a lot of small business owners to procrastinate, because it can cause one to feel overwhelmed just thinking about writing one. But, it is necessary and remember to get help doing it. You don’t have to write it alone and neither do you have to create a long 100 page document.
4. Gather your business financials. Most of the time a lender or loan specialist will also ask you for financials. This will include the Business Checking Statements, Balance Sheet, Cash Flow Projection and Tax Statements. Depending on the number of years you have been in business be prepared to provide up to 3 years of statements.
5. Apply for your DUNs (a.k.a. D&B) Number. The DUNS number is a 9-digit number that is used worldwide in tracking more than 100 million businesses. It helps to build your company’s credibility and helps vendors, lending agencies and others to verify that you are running a legitimate business.
6. Apply for a business phone line that can provide you with a 411 directory listing. This is normally with your local phone company. Validating a business phone number is normally the first thing that vendors do to verify that you are indeed a real business.
7. If you’re a home-based business, consider also using a virtual office service that has a commercial address (not a PO Box or UPS Store). This means that you should be able to receive packages there and anyone should be able to visit the office and ask for you or your company by name. There are many such services popping up all of the US, so you shouldn’t have a problem finding one.
8. Make sure that any services you use are in the name of your corporation. This should include: cell phone, office lease, any machine leases, business services etc.
9. Start applying for business credit with vendors (Staples, Office Depot etc.) that report to business credit agencies, such as Dun & Bradstreet and Experian. Make a list of items that you need in your business that can be purchased through a line of credit or lease, instead of using cash. Don’t just trust a vendor’s word that they report to business credit agencies; ask if they have it in writing in their literature or credit applications.
10. Only use 35-50% of your business credit cards spending limit. Business creditors get very nervous when you use anything larger from your spending limit and especially when you don’t pay it off within 30 days. This shows that you might be having a cash flow problem and they run from that.
Once you have received your D&B number, consider using the D&B File Creator Service. This allows you to quickly place business accounts on your file and helps to establish your credit worthiness quicker. In addition, it will be important to check your business credit profile at least quarterly to ensure that everything is being reported properly and that your score is getting higher.
As you build your business credit, it is also important to understand the importance of paying your accounts payables at least 7-15 days ahead of time. This goes over well with business creditors and is reported on your Dun & Bradstreet credit report, which helps your score to go higher.
The information provided above are suggestions based on the success that others have had in building their business credit. It is not a conclusive list and there are many other things to consider when working on building your company’s financial reputation. However, it’s a start in the right direction.