More than likely, you depended on your personal credit when you launched your small business. However, a growing business must tap higher amounts of capital, and a good business credit score will prove helpful in this regard.
Business Credit Score
Your business credit, also known as trade or commercial credit, is based on the likelihood that your enterprise will repay its debts. Like personal scores, your business credit score is calculated using several inputs, including your payment history, bankruptcies, collections and your credit utilization ratio – your outstanding credit balance divided by your available credit. In addition, your business credit score might include considerations about your company’s size and your industry. Keep in mind that your business credit report can be requested without your permission, and you’ll have to pay to get a copy of your business credit report.
Creating a Good Credit Score
It makes sense to establish your business credit score as soon as possible, because you don’t want to look desperate if you suddenly need credit. You’ll find many lenders require a company to operate for two years, although an IOU Financial loan needs only one year of history. If you’re operating, you should be building your business score. Here’s how to do it:
Obtain Federal Employer Identification Number:
This will help separate your business from your personal finances. You should also get a business checking account and a business phone number. For optimal protection of your personal assets, consider establishing your business as a limited liability company or a corporation.
Get a DUNS number:
Dun & Bradstreet is a corporate credit reporting agency that issues a universal identification number, the DUNS number, that is recognized around the globe. A DUNS number opens doors to some corporate and government contracts, as well as loans from the Small Business Administration. More to the point, D&B will create and track your business credit profile when you get a DUNS number, leading to an accurate credit score.
Establish credit accounts:
Obtain one or more business credit/debit/charge cards, including a gas card if your business has vehicles. Also, open credit accounts with your suppliers, including office supply stores.
Use your credit responsibly:
Pay your bills on time, and even ahead of schedule. Nothing helps your credit score like an unblemished repayment record. If money is tight, you can get a commercial loan and pay off your other debts. One of the biggest challenges a small business faces is making the monthly loan payment. IOU Financial has a better idea – daily or weekly automatic payments that you’ll barely notice.
Don’t be delinquent, renegotiate:
If you’re having trouble paying your credit accounts, don’t miss payments. Instead, reach out to your suppliers for looser terms. Many will agree rather than risk default.
Mind your credit utilization ratio:
A ratio below 20 percent is great. It means that you have the means to handle a sudden need for money without scrambling to obtain additional credit. It also indicates you are operating your business well. Make it a priority: Calculate your CRU and get it down below 20 percent.
Check your credit report:
Get an updated business credit report every three months and check for mistakes. One derogatory mistake can sink you credit score, so clean them up as soon as you identify them.
It’s wonderful to have a good credit score, but bear in mind that IOU Financial doesn’t require it to lend you money. If you’ve owned and operated your own business for at least a year, clear $100,000 in annual revenue, average a daily bank balance of at least $3,000, and make at least 10 bank deposits a month (for retail/e-tail companies), IOU Financial will do everything possible to approve your loan request, even if your credit score is less than good.