If you are starting a business, you may need to find a way to finance your dream. Whether you are looking to secure a business loan, or are planning on opening a business credit card to use for purchases, you will need to sit down with a lender and fill out a credit application.
Just like your personal credit, lenders will determine whether or not to loan your business money, based on your business credit score. If you have a low score or a limited credit history, chances are banks will likely turn you down.
As an entrepreneur just starting out, you could be faced with a slight hurdle when it comes to your credit history, but it is not something that you can’t take control of and find a way to establish the business credit that you need and build the great score that will get you noticed by lenders.
Mind Your Personal Credit Rating
While all of the business experts advise not to mix your business dealing with your personal dealings, your personal credit rating is something that the banks will look at when they are deciding on the fate of your business credit application. When banks are looking at your personal credit rating, they want to see a credit score of at least the mid-600’s notes Ami Kassar, co-founder and chief executive of MultiFunding LLC.
A good rule of thumb is to look into what your personal credit score is before heading to the bank to complete a business loan application to make sure you are up to speed with where you stand. If you don’t know what your personal credit score is, you can find out through online companies like Credit Sesame and save yourself some time and money before heading to the bank to apply for a business loan.
Establish a Business Credit File
When you start your business, you want to establish your business credit file. When you first start the process of opening your business, the U.S. Small Business Administration recommends you apply for your unique D-U-N-S number in order to start your business credit file. Once you have an established file it is important that you keep up with the information that ends up in the file.
Be sure to add or modify any information that needs to be adjusted so those that may look at your business credit file in order to make a decision have complete and accurate information. With the increased threat of identity theft you want to make sure that you keep a careful eye on your credit report and monitor it regularly.
Pay Your Business Taxes
No one likes to pay taxes, but not paying your business taxes can seriously damage your business credit. If you fail to file and pay the taxes that are owed on your business, your business will be reported as not being in compliance. This information gets reported to the credit bureaus and your credit rating suffers as a result.
To make sure that you maintain good credit, it is important that you file your business tax returns and pay what you owe, when you owe it explains Nellie Akalp, writer The Next Web, Inc. If you’ve gotten yourself into a bit of trouble, or you’ve fallen behind on your business taxes, the best thing to do is talk to a tax professional and get things worked out as soon as you can.
Obtain Credit from Vendors
If you are able to start off doing business with vendors or suppliers that are able to report your business’s payment history to the credit bureaus, it’s a good first step to establishing your business credit. Make sure that you make on time payments so your good payment history can be reported to Dunn & Bradstreet, Experian, Small Business Financial Exchange, and Cortera.
If possible, register with these commercial credit bureaus so you can keep an eye on your business credit reports, notes Gerri Detweiler, personal financial adviser for Credit.com. These commercial credit bureaus are the ones that lenders will check before approving you for a business loan.
As a small business owner, you are in a Catch 22. You need to be able to obtain financing in order to get your business off the ground, however without an established business credit history, banks are reluctant to approve your application for financing. The only way that you are going to be able to get the loan that you need is if you buckle down and work at building your business credit history, which can be a somewhat slow process.
In the beginning phases of your business, you will have to rely on your personal credit rating to obtain the financing that you need, but as your company grows, and your credit history becomes longer you’ll be able to use your business credit rating to help you secure funding for future business growth.