Building Business Credit: What You Should Know from Thebusinesscowboy

When you’re starting your own business, it can be challenging to get the financing and credit you need. The process of building credit can be especially difficult for business owners who are also their company’s primary investor. Depending on how much cash you have, establishing a business credit profile may involve some risk and sacrifice. It is important to understand the various ways that a small business can establish and build credit if you want to succeed in creating a profitable company. Here are some tips from thebusinesscowboy on building business credit so that your company is equipped with all the resources necessary to thrive in today’s economy.


What is Business Credit?


Business credit is a record of your business’s ability to pay back loans. It’s different from personal credit (your credit history as an individual), and lenders use it to assess your business’s ability to pay back a loan. A record of business credit can help your company secure lower interest rates on loans and find other sources of funding. Business credit reports are managed by one of the three credit bureaus and will contain information on your company’s payment history, debt amount, and other factors that lenders use to determine whether they’ll extend credit to your business. Business credit reports are separate from your personal credit report and are not affected by any actions on your personal credit.


How to Build Business Credit


First, establish a business credit profile. This can include getting an EIN (Employer Identification Number), opening a business bank account, and setting up payment plans with vendors who provide services to your business. Next, make regular payments on any outstanding debts. While you’re paying off debt, try to make consistent payments. Lenders like to see timely payments, so stay consistent to show lenders that you’re reliable. Once you’ve paid off a debt (or multiple debts), apply for credit. You can start with a small line of credit from your bank or apply for a short-term loan to fund your business until you’re generating cash flow. Once you’ve been approved for a loan and repaid it, your business’s credit will continue to improve.


Establishing a Good Credit Profile with a Co-Signer


If you have a co-signer, like a parent or a spouse, who has great credit, you can start building a positive credit history by having them sign on to a loan with you as a co-signer. You can also open a business credit card with a co-signer, but keep in mind that the co-signer is legally responsible for any payments that you miss. Co-signing offers an easy way to establish business credit, but it can have a negative impact on the co-signer’s credit history. Make sure you pay your bills on time to avoid hurting your co-signer’s credit.


Establishing a Good Credit Profile with an Advisor/Co-Founder


If you’re starting a company with a business partner, you may want to consider having your partner cosign a business loan. This will help you build a positive credit history from the beginning. You can also open a business credit card with your partner as a co-signer. This will help your partner build their credit as well. Keep in mind that both of you will be legally responsible for any payments that your partner misses. Establishing a positive credit profile with a business partner means that you should both make sure to pay your bills on time.

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Establishing a Good Credit Profile with Equity


This option is only available to owners of a company who have investors. Fortunately, a business owner can generate an income statement that shows their company’s financial performance. This document can help you prove the value of your equity to a lender who may be skeptical of your ability to pay back a loan without a track record of business credit. Even if you don’t have business credit, you can prove that your company brings in enough revenue to pay off a loan. You can also provide financial projections to show lenders how you plan to continue growing the company. This may be the only way to get a short-term loan until you’ve established a positive credit history.


Why Business Credit Is Important


Business credit allows you to secure loans for equipment, inventory, or travel as you grow your company. It also helps you to get better interest rates than you can get with an individual credit card. Having a record of consistent payments on time will help you to qualify for better rates on equipment, inventory, and loans. This can save you money and give your business the resources it needs to thrive. Business credit also allows you to take advantage of otherwise unavailable financing. This may be particularly helpful if you’re bootstrapping your company with your own cash or if you don’t have any shareholders willing to finance your business. Business credit can also help create a paper trail that proves you’re a capable leader who is able to meet financial obligations.


Bottom Line


When you start a business, it’s important to understand the importance of building a strong credit profile for your company. There are a few ways to build business credit, but it can be challenging, especially for new businesses. It is important to be aware of the sacrifices you must make to build a solid credit profile for your company.


Building business credit can be challenging for new companies. However, it’s important to establish a positive credit profile as soon as possible. You have to search for multiple ways to build a positive credit profile. Yet, you have to know that each of them comes with its own set of risks and sacrifices. If you take the time to establish a positive credit history, you’ll have access to better financing options. This will help you scale your business more quickly, which will help you to reach new customers and increase revenue. This is the reason why businesses especially the smaller ones exert extra effort to have a business credit.



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