We all tend to place a lot of importance on our personal credit scores. After all, we need good credit in order to buy a house, a car, or be approved for student or other personal loans.
Unfortunately, many business owners and mompreneurs tend to ignore their business credit, which can be very harmful in the long run. Some others just don’t know how to build business credit.
You need to know that your business credit score can determine whether or not you can get a lease on a new workspace or be approved for any type of business loan.
How to Build Business Credit: A Handy Guide
We’re here to help you out by giving you some lesser known tips that can boost your business credit:
1. Incorporating Your Business
The first thing you have to do in order to build business credit is to separate it from your personal credit. This means that you need to incorporate your business to separate your personal finances from your business finances.
2. Open a Business Bank Account
Just like a personal credit score, having more open bank accounts can build your business credit score. You should make sure to at least have one business bank account to guarantee a higher credit score.
3. Use Business Credit Cards
Credit cards don’t always have to be for personal shopping sprees.
Many business owners get credit cards from their banks to be used for minor expenses (like meetings or lunches), and even bigger expenses (like inventory costs or loan payments). Using a business credit card will certainly build your business credit.
4. Establish a Line of Credit With Vendors and Suppliers
It is always a good idea to establish a line of credit with at least 5 of your vendors or suppliers. Ask them to report your payment history to your business credit agency of choice.
5. Pay On Time
Ok, this might not be that much of a secret, but you MUST make all of your payments on time. This is one of the biggest factors affecting your credit score. You could do it by either using automated payments or keeping a document outlining the payments you have to make and when.
Building Business Credit in the Real World
A Blooming Business
Let’s take the example of Janet Smith, a local mompreneur that is looking to take her at-home antique business and turn it into a flourishing business by adding a new storefront for all of her wares.
Janet tried to lease a workspace but was rejected by lenders due to having a low personal credit score (due to how much student loans she still has). Janet wants her children to know not to give up in the face of adversity, and she is determined to build her credit score so she is able to get that lease.
The first thing she does is incorporate her business to separate her personal and business finances.
She then opens a new bank account and credit card for her business to use when storing profits and buying materials.
After using her credit card and making timely payments, her credit score rockets up, and she is finally approved for a loan that will take her business to the next level.
A Family That Works Together, Thrives together
Another example could be the Renners, a mother and father of three that run a comfort food café with the entire family.
They quickly realize that the 5 of them cannot run the entire restaurant by themselves and need to hire some outside help. When they try to get a business loan to hire new workers, they are denied due to their credit score being low.
The Renners are an incorporated business and have a bank account and credit card for the business, but they don’t use it very much.
In order to build their credit, they decide to reach out to the suppliers of their ingredients and cookware and set up lines of credit with them.
After a few months of making timely payments on these lines of credit, the Renners’ Café credit score finally increased to the point where they could get approved for a small business loan.
The Importance of Business Credit
If you are struggling to balance your business credit score, you can increase it by following these simple tips. After you do so, you’ll open more opportunities for your business and you’ll be able to grow and get more revenue than before.
So don’t wait a second more, start working on your business credit today.
We wish you luck on getting those credit scores high!