Your small business credit score is important. Credit bureaus begin collecting information about your business from day one, using this data to generate reports that impact your ability to get financing, such as a small business loan. Here are some ways to establish and improve your business credit score.
Your Business Profile – Get Your Ducks in a Row
If you haven’t already, register or incorporate to get your business in the books officially. As part of this process, you will also obtain your Canada Revenue Agency identification number – this is essentially the SIN number for your business and ensures your business is identifiable as a separate entity. You can then open chequing and savings accounts in your business name, and use your business profile to apply for loans online or in person down the road. You will also want to ensure your dedicated business name, address, phone number and other key details are all listed consistently across all of your accounts, keeping in mind that any inconsistencies could signal red flags for creditors. Finally, you’ll want to contact the credit bureaus to ensure the information they have on file for your small business is accurate.
Improve your Personal Credit
Although you have established your business as a separate entity, your small business credit and your personal credit are still linked – this is especially true during the early years of your business. While you are establishing your small business credit, lenders will look closely at your personal credit history to get a bigger picture of your financial standing. This means that any steps you take to improve your personal credit (paying bills on time, avoiding predatory loans, etc.) will also improve your small business credit score as well.
Separate your Personal and Business Finances
This may seem like a no-brainer, but it’s quite common for small business owners to occasionally intermingle personal and small business finances. Many business owners use personal loans and credit to finance business expenditures or weather cash flow crunches. However, as your business matures and you set your sights on raising your small business credit score, you’ll want to start untangling your personal finances from your business completely and seek out credit solutions tailored specifically to your business.
Get a Small Business Credit Card
Obtaining small business credit (such as a credit card or a line of credit) is one of the most important steps you can take towards establishing a good business credit score. Even if you don’t feel you need a credit card for your small business, the key is applying before you need it. There are a number of benefits to consider. For instance, a small business credit card can help draw a hard line between personal and business expenses. A business credit card can also help you with recurring payments, online purchases and provide essential cash flow when needed (for example, if your accounts receivables are late). Many lenders offer rewards programs and other benefits with business credit card products, such as points for travel, discount on rental cars and more. If you have employees, credit cards can be an excellent way to track and control employee spending. The best way to obtain a credit card for your business is through the bank associated with your business chequing and savings accounts. Remember of course to always pay on time and as close to the full balance as possible, as this is key for establishing a good small business credit history. Also, make sure to keep track of any recurring or upcoming payments to avoid over limit fees which can also impact your credit score.
Ask your Vendors & Suppliers for Trade Credit
Trade credit can be an excellent tool for small business owners who have ongoing relationships with regular vendors and suppliers and want to improve their small business credit score. A trade credit refers to any arrangement a business makes with vendors where supplies or services can be purchased on account and paid for at a later date without impact to credit. Many small business owners use trade credit without even realizing it, but any time you acquire goods or services without paying at the same time, that is essentially the arrangement. Such arrangements can give you some breathing room around payments, improving cash flow and subsequently your business credit rating. If you have a good relationship with your regular suppliers and vendors, don’t be afraid to approach them about payment arrangements – if they value your business, they may be flexible.
Pay on Time or Early
Just like with personal credit, late payments can hurt your business credit score. Lenders and vendors alike can report delinquencies or non-payments to collection agencies, or even worse, to credit bureaus directly. This can result in a lower business credit score. However, many business owners don’t realize that early and reliable payment information is reported and rewarded as well. Whether you are aiming to pay on time or ahead of schedule, it may be helpful to explore productivity tools or apps to help you keep track of your payments. For many, simply recording due dates in their calendar does the trick!
Utilize a Small Business Loan for Cash Flow
Further to the point above regarding paying on time, a small business loan can be a lifeline during a cash flow crunch, making it possible to stay on track with payments and thus protecting your business credit score from the potential impact of delinquencies. Think outside the box when it comes to small business loans – today’s high tech landscape offers simple, fast and convenient online loans specifically tailored to your small business. Choose a reputable online lender, such as Lendified, that offers fast and affordable loans and allows you to choose a term that meets your needs.
Keep a Close Eye on Your Business Credit
Finally, be sure to monitor your business credit closely in order to understand how your actions impact your business credit score. As the old saying goes, “what gets measured gets done”. Monitor your credit for improvement opportunities by simply requesting a report from a credit bureau. Be sure to look for and challenge errors, as it is not uncommon to find them. After all, your small business credit score is on the line.