Some things in business are easy. You know your product or service inside out and backwards. But when it comes to building your business credit, you — like countless other small business owners we’ve helped — you might be coming up a bit short. You’ll need a little time, a bit of patience, and a nudge in the right direction. Think of the steps below as your road map for establishing business credit.
Road Map: Establishing Business Credit
Warning: Timing is Everything
Before we get started, let’s revisit a point we made in the introduction. Establishing good credit takes time, so you’ll want to get started before you think you need to. If you wait until you need a loan, working capital, or a revolving line of credit, you’re starting out behind the eight ball. The small steps you take now will dramatically increase your chances later.
Start with the Fundamentals
Establishing your business name, the appropriate legal and financial structures, a website and email, any appropriate permits and licenses, and a business bank account should be your first steps. Your potential creditors will look at these seemingly minor details as an indication of your diligence and creditworthiness.
Don’t Mix Business and Personal Finances
You should act as though your business finances and your personal finances are oil and water — never to be mixed. Alliant Business Systems has a business credit program that can help you disentangle the two and improve your odds of approval.
Start close to home. The businesses you use for small things like office supplies, shipping, and the like often offer lines of credit. It doesn’t need to be big to be effective; your FedEx or Staples line of credit — paid on time — can be a building block toward bigger things. Likewise, build relationships with multiple vendors and lenders. You never know when terms and conditions may change; if they do, you don’t want to be caught flat-footed. Keep your options open.
Know the Five C’s
The Minority Business Development Agency (MBDA) reminds business owners to be mindful of the five C’s of business credit. They’re the criteria a lender uses to evaluate your business. In brief, these are:
- Capacity, the ability to repay
- Capital, the money you’ve personally invested and are able to contribute to business growth
- Collateral, the ability to secure the loan
- Conditions, the use to which the loan will be put
- Character, your lender’s assessment of your trustworthiness
This is also one of the many times when writing a business plan can help you make sense of your current position, and map the steps to get where you want to be.
Monitor, Repair, Then Monitor Some More
We’re shocked to find how many business owners have no idea what their business credit report contains. For the amount of power they wield, the credit bureaus are entirely too fallible. Your credit report can be riddled with errors, or stuffed to the brim with inaccurate or outdated data.
Business credit monitoring helps you take advantage of business credit repair, after which you should still monitor on an ongoing basis. That way, you’ll always know that your report is accurate and is portraying your business’s creditworthiness in a fair light.
If you’re navigating the challenges of establishing — or even rebuilding — your business credit, we can help. Contact us today to see how we can assist you!