Effective Ways to Build Business Credit

No business person starts a new company with all the necessary funds. Although the developer is expected to provide seed capital, he or she will likely have planned to obtain credit to use as working capital, for expansion, and for diversification. However, creditors are wary of lending to start-ups. To qualify for the credit, you must build business credit as soon as possible. For this it is necessary to meet certain criteria. Some of these are fairly easy, but show the potential creditor that you are serious about the business venture.

To establish your business credit profile, you must register your business with local authorities. Get all the necessary permits and licenses to operate your business. Another fairly easy step is to get a business phone number and yellow pages listing for your business. Banks and other financial institutions routinely check these things. Even if you run your business from home, make sure your business phone number is different. These simple steps will help you build business credit.

To establish business credit, first approach a few vendors for credit for small amounts. Please be absolutely prompt in paying these amounts and ask your creditors to report your good credit performance to the commercial credit rating agencies: Dun & Bradstreet and Experian. When other potential creditors see your positive credit history, they will be more willing to offer you a larger line of credit. To make sure your credit history is positive, request regular credit reports and verify that all the information you enter is correct. In case of errors, submit documentary evidence and correct your records.

A good business plan is also vital to business credit success. Bankers and other creditors, such as venture capitalists and angel investors, will review your business plan carefully to look for loopholes. Once you document your business plan, attach documents that support your projections for both expenses and income. Make sure your projected numbers agree with industry data or you can defend your variances.

To build corporate credit, you must also establish the business identity of your startup. To this end, you must incorporate your company, making it a limited company. This is advantageous as your personal credit rating will be protected from any downturn in business. A second benefit is that you don’t have to have excellent credit for your business to get a loan. Instead, your business will be evaluated on its own merits.

In the final analysis, to build business credit, you must have a proper business plan and pay your debts on time. While lenders may initially base their credit decisions on factors such as the availability of permits and licenses, they will part with larger amounts of money only after you demonstrate your ability to pay small amounts on time.