To successfully run and grow your business, you need to keep lenders by your side. You need good lenders to finance your business, and the only way to do this is through having a good credit score. Taking care of your credit health is essential for your business financing needs. Maintaining a good credit history is different from not borrowing at all. One of the best ways to do this is to borrow and pay on time. So, how do you improve the creditworthiness of your business? This article outlines eight ways to do so.
Have a Separate Business Entity
The first mistake that small business owners make is not registering their business as a limited liability company. Running a business as a sole proprietorship can badly hurt your credit history as lenders see it part of you. Even if you’re running a sole proprietorship, you need to take care of your business’s legal structure, such as having a license and an identification number. Also, ensure you open a separate bank account and credit card for your business and avoid using the personal one. Also, stay away from the temptation of getting finances from your personal account to finance your business. Once you separate everything, you won’t have risk your personal credit when applying for a business loan.
Start by Laying a Good Credit Foundation
The secret to improving the credit history for your business is starting well. Your business’s credit history is something that’s going to hunt you for a long time, and if you start on a bad foot, then things are going to get tough. You can lay the foundation by starting a good payment history with your credit card as you improve with time.
It’s impossible to land a six-figure loan when starting out. The little credit card loans are what will boost your credit score if you pay on time. Don’t forget to maintain a strong cash flow as other lenders may evaluate this as well as your income. Well, this may not affect your score, but a strong cash flow provides you with additional financing options.
Know How to Choose Your Lenders
Not all loans are to be applied for no matter how promising they seem. You need to understand the kind of lenders that can help you build a good credit history. Choose a lender that you can grow with and have the interests of your business at heart. For instance, if they finance you two times, the third time, they should provide better terms, including lowering the interest rates. Some types of lenders do not report to credit bureaus; hence they won’t help you improve your score. You’re not just looking for money to finance your business but an opportunity to grow your business. These kinds of lenders won’t be any good if you’re looking for an opportunity for more finances in the future. Having a business advisor can help you decide the kind of lenders to work with and which ones to avoid.
In Singapore, there are lenders that are legalized, and you can check them out below;
Check Your Scores Often
Don’t just relax and assume everything is okay. Mistakes can happen anytime, and if you don’t rectify them on time, they can badly damage your score. Checking your score from time to time gives you insights on where you stand as far as your credit. You will only be able to point out disparities in your credit reports if you view them. Sometimes there are very small errors that you can easily correct, but you won’t notice them unless you check. Business credit reports are prone to errors more often than personal ones. A simple mistake, such as an incorrect SIC code is enough to damage your score. You can also check your score with credit reporting sources before applying for any loan and make necessary corrections on time.
Your Personal Credit History also Matters
Don’t focus so much on building your business credit history that you forget about your personal score. If you’re a startup or a small business, some lenders will go through both personal and business credit history before giving you any form of financing. A small business is still closely aligned with your financial situation; hence they must go hand in hand. If you’re not so good with your personal score, you might also jeopardize the chances of your business qualifying for a loan. So, always ensure you clean up with your personal credit history alongside that of your business. Pay your loans on time, avoid bad credit card loans, and check your personal score often.
Watch Your Credit Card Balances
Maximizing your credit card can jeopardize the creditworthiness of your business. If you have high outstanding balances on your credit cards, your score will also lower as the two are closely related. Make sure the amount of credit you’ve used doesn’t exceed 30 percent of the total amount. To know the exact amount, divide your total credit card balances with the card limit. This way, you’ll know where your credit card balance lies and figure out your score as far as financing for your business is concerned.
Take Care of Your Score
Building your business score is not easy, but damaging it takes only a day. Be careful with every action you take that can put your score in danger. Before applying for a business loan or taking any credit action, know whether the history will be a hard pull or a soft pull.
A lender can view your history either way, but a hard pull can damage your history without you knowing. This happens when a lender does a credit check after you make a business loan application or even a credit card application. If they notice any credit application inquiries, they might refrain from giving you a loan. This gives them the impression that other lenders turned you down or you’re in desperate need of a loan. Soft pulls won’t hurt your history because these are just normal background checks that are also done by employers before hiring.
You Need Business Credit Accounts
This is another place where most businesses fail as they think having a personal credit card is enough. Even if you already have a separate account for your business, you still need a credit card solemnly for your business. You need to establish business credit accounts if you want solid credit history. To obtain a business credit card, you’ll have to look at your personal credit and finances. This type of account reports your payment history to commercial credit agencies hence giving you a good score. Once you have this, make sure you get your business finances from lenders that will report your credit card history to help build your score.
Every aspect of running a business requires finances. You need money to start, expand, pay workers, buy equipment, and everything else that your business might need. Your personal funds won’t cover up even half of these expenses. You have to rely on lenders to run your business and gain financial power. All these goes back to how well you maintain your credit score. Now that you know, you can start working on improving your score so that you improve your chances of getting the finances you need for the successful running of your business.