Five Ways to Build Business Credit
Growth Strategies for Small Business
1. Mind your personal credit rating. - The biggest factor in many banks' decision to initially lend businesses money
is the owners' personal credit ratings and they typically look for a personal credit score of at least the mid-600s. To boost your credit score, be sure to pay personal bills on time, keep a low ratio of debt to available credit on personal credit cards and credit lines, and make sure any balances remain under 30% of your limit on credit cards. Moreover, lenders will also often check the personal credit of any investor or business partner with more than a 20% stake in the business.
2. Apply for credit before you need it. - To begin building a credit history for your business, apply for at least some sort of credit soon after starting up. A small business will often have to establish itself for two years before a bank feels comfortable offering a sizable credit line. But there are ways around that, such as getting a business credit card or applying for a small bank loan. If you have trouble scoring even a small loan, consider opening a store-based credit line or getting a small secured credit card with a low limit. Some major retailers that supply to small businesses, such as OfficeMax or Home Depot, offer commercial credit accounts that can help build a credit history for your business.
3. Grow your credit and use it. - Many businesses with enviable credit histories applied early for business credit cards and credit lines and used them as early as possible. Once you've established a payment history, request an increased credit limit -- even if you don't need it right away. Also, check to see if you have a profile with Dun & Bradstreet, a business data and credit reporting agency. If not, it may be worth paying a fee to set up a profile. You can then add credit references, such as suppliers you've worked with, to elevate your credit profile as a business.
4. Forge relationships with more than one lender. - Banks can change lending policies on a moment's notice and cut your credit limit overnight, so it can help to not have all your financial eggs in one basket. You might instead choose to have a credit card through a major bank and your credit line through a locally-owned bank or credit union.
5. Consider alternatives. - Remember that traditional banks are not your only shot at credit. There are a growing number of other options, such as securing investors. Other resources include asset-based lenders, which focus more on collateral rather than credit worthiness, factoring -- which lets you borrow against your accounts receivables -- and peer-to-peer lending and crowdfunding sites, such as Prosper.com and Kickstarter.com. Using these alternate channels can at least indirectly improve your chances of getting credit in the future.
Source: entrepreneur
Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.
Growth Strategies for Small Business.
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