Many business owners struggle to acquire loans because they have either bad credit or no credit at all. When a lender reviews a business owner’s loan application, they’ll look at the business’s credit history. Even if the business owner has good personal credit, bad business credit could prevent him or her from getting approved. So, how can business owners improve their business credit and make sure they’re in a good position to receive funding?
Access the top business credit reporting bureaus
First, business owners should create an account on each of the three primary business credit reporting bureaus: Equifax, Experian and Dun & Bradstreet. Doing so allows them to analyze their business credit to ensure it’s accurate and up-to-date. If there’s a discrepancy, the business owner should contact the creditor or file a dispute with the reporting bureau.
Use business credit cards for purchases
Purchasing business-related products or services with a personal credit card isn’t going to help a business owner improve his or her business credit. Personal credit is completely different than business credit. Therefore, business owners should use a business credit card for these purchases. It’s also important to keep these expenses separate for more accurate tax reports. Business owners could miss out on valuable tax cuts and face a nightmare when tax season comes around.
Pay on time
Paying bills on time is essential to building credit. When a business owner pays a bill late, the creditor may report this issue on his or her business’s credit. Each of these delinquency marks hurts the business owner’s chance at getting approved for loans and lines of credit in the future. To prevent this from happening, business owners should pay all their bills on time, preferably with automatic withdrawal before the due dates.
Don’t close accounts
Some business owners close credit accounts when those accounts are no longer needed. As explained by Bankrate.com though, closing accounts can hurt a business’s credit. Creditors are more willing to loan money to businesses with many low-balance, open credit accounts than businesses with closed accounts.
Choose lenders carefully
If a lender doesn’t report to the credit bureaus, acquiring a loan or line of credit from them won’t help the business owner build credit for his or her business. Business owners should selectively choose lenders that report to the three business credit bureaus previously listed.
Maintain low revolving debt
Finally, business owners should keep their business’s revolving debt as low as possible. This is the amount of debt that’s carried from one month to the next. Businesses with high revolving debt are viewed as being less financially stable by lenders.
Building business credit takes time and patience. Business owners can’t expect to see results overnight. However, following these six tips can help business owners improve their business credit and improve the financial health of their company.