Small Business Credit

Building credit for your small business

Small businesses cannot rely solely on cash to survive and mature. Credit is a very important source of funding for any company, yet it can be difficult to secure; poor personal credit, a low business credit rating or a lack of small business credit can leave your business struggling to stay afloat. Learn the essentials of small business credit, including the aspects of a credit profile and how to improve your business credit.

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Your Business Credit Profile

Good business credit can get you a lower interest rate on a loan, will protect your personal assets and will help you acquire more financial assistance when you need it. The bottom line is that good business credit will save you money, and more money for your business means a higher likelihood of success.

Your business credit profile is made up of information about your company's financial health, including its payment and banking transaction history, corporate financial reports and government grants or loans. These factors will help to determine your business credit rating, which you can access by requesting a business credit report from a credit-checking agency. The main purpose of the business credit rating is to show how your company handles bills and monthly payments; a lender will be hesitant to grant you a line of credit if you are consistently late with payments.

Along with your payment history, the size, structure and reputation of your business will be examined by a lender before a line of credit or small business credit cards are assigned. If you find that a business credit check returns disappointing results, you'll have to begin to build your business credit to sustain your business in a competitive market.

How to Build Business Credit

First, you will want to separate your business credit from your personal credit to avoid any confusion regarding your transactions and debt. This means that you must register your company as a corporation and ensure that it has all of the necessary licenses and registrations. Given that your credit rating rests so heavily on your financial habits, a good way to improve your business credit is to sign up for automatic monthly bill payments that cover the minimum amount due. The automatic payments will prevent late or missed payments from dragging down your credit rating.

Building business credit from nothing requires a different approach than improving existing credit. For new businesses, the process will begin with a business credit application that includes a thorough business plan, copies of your financial statements and your banking history. Creditors can differ widely in their requirements, so if you find that you are ineligible for credit at one institution, keep looking around.