Credit is important for any business, but small business credit can have a huge impact on the success of the small business. For small businesses, having available credit can be the difference between success and failure. Small businesses can often have cash flow deficiencies. They may complete work but have to wait for payment. In the mean time, there are still costs for doing business that need to be covered.
For most new small businesses, the credit that is made available to the business is often based, at least in part, on the credit worthiness of the owner(s) or the officers of the business. For this reason it is good for entrepreneurs to try and be sure their personal credit is reasonable when deciding to start a new business.
All is not lost if your credit is ‘less-than-desirable’. You may not be able to get as much credit, as fast as you would like or as is really needed, but you can still get some credit for your business. When your credit is not very good you just have to take small steps and if your budget allows, it’s a good idea to consult a business finance professional.
Firstly, your business must be legitimate. This means that your business is registered as a business entity and you must have a federal tax id. Before anyone extends you credit for your business or in your business name, they will ask for your tax id. Once that is in place, start with small accounts like office supplies retailers. They are generally, not as strict on their credit requirements and they are very useful because you will need some kind of supplies. Get one or two of those accounts and use the accounts. If you work with vendors, see if your relationship is strong enough for them to extend your business some credit. The main thing is to be sure you pay them in a timely manner so you don’t tarnish your business credit before you get a chance to build it.
If you can secure a few accounts, as mentioned, you can soon seek credit from credit card providers. Again, you want to use your credit wisely and be sure you pay on time, every time. As you continue to make payments your business credit score will begin to rise. As your business progresses and your credit score increases, you may, then be able to seek lines of credit from banks and other sources. Keep in mind that the more credit you seek for your company, the more information the lender generally requires. This just means that if you are seeking large amounts of credit or funding that you must be sure your business plan is solid and you must be able to show a certain level of success up to that point. Just ask yourself, If I was lending the money, would I lend it to my business? Be honest.
Keep in mind that building business credit is a process. Establish small accounts and develop a track record of usage and payment. Only seek credit that you need so that your business does not appear to be over extended. Finally, use your credit wisely, try to only use credit for purchases that are directly related to the business.
Continue reading here.