Every retailer is aware of the importance of building business credit— most of them just don’t know how to go about it. It is one factor they look at when assessing your eligibility for a micro-business loan, a line of credit, or any other kind of funding.
Follow this guide to build credit for your company.
Understand the process of Business Credit Reporting
You need to learn the process of business credit reporting. Credit reporting agencies get their data from the lenders and creditors that offer you funding and process the info via an algorithm to determine your business credit score.
However, there are some fundamental differences particularly regarding the factors to consider when calculating FICO scores. Each of the three giant credit reporting firms— Dun, Experian, and Equifax—use different methods to calculate scores.
Run your Company as a Separate Entity
For most retailers, the greatest challenge to build business credit is making sure their card payment histories are reported. The truth is; most credit card issuers and vendors are usually more ready to file negative reports, e.g., delayed payment, than positive reports. For that reason, you need to follow up to see that your card issuer or vendor file reports that build your business credit. In fact, it is advisable that you apply for a checking account so that you can keep your personal finances 100 percent separate from your business credit.
Select an appropriate Legal Structure
The legal structure you pick will impact every aspect of your business. And while you may want to go for the two most basic structures— a sole proprietorship and a partnership ( if you have a business partner), these unincorporated models make it more difficult for your company to grow its credit as a distinct entity because they do not separate the company from the owner either legally or financially.
As a remedy for distinguishing yourself from your firm and ensuring your business credit is building it is advisable to choose a C Corporation, S corporation or Limited liability company model. Find out more about these models before choosing one.
Request Your Suppliers and lenders to Report Your History of Payment
Ask all your third-party vendors to report your history of payment. This is possible because most suppliers offer trade credit (they issue the product or service up front and allow you to pay later via an invoice. As a result, they have the potential to better your credit report if they give a report every time you make timely and complete payments.
Lenders who provide you with merchant loans should also report your repayment.
Use your Business Credit Card to settle Daily Expenses
On top of your large-scale business spending are several small daily operating costs that are one-off or recurring. Resolving these expenditures using your business credit card not only allows you to supervise your daily expenses but also establish business credit.
To even enjoy more benefits of a business credit card while cutting cost, always view your credit card spending like it were cash. Bear in mind that building business credit won’t happen overnight, but your efforts will definitely reward you.