Building business credit can take anywhere from 3-6 months for an initial score to 1-2 years to establish strong credit. To ensure success in building credit for your business, it’s crucial that vendors report directly to credit bureaus. You should regularly monitor these reports. Separating personal and business expenses is essential to creating an independent entity. Take these three tips to build business credit without using personal assets as collateral.
1. Create a Business Bank Account
Establishing a separate bank account for your business expenses is the first step toward effectively segregating them from those related to personal expenses. Both lenders and credit bureaus expect a clear distinction between them. Numerous suppliers provide trade credit, enabling you to gain goods or services now while paying for them later. By working with vendors that report to business credit bureaus and paying them on time, you can build up a positive business credit history.
Establishing business credit can also be enhanced with a credit card that reports directly to credit bureaus. By responsibly using it, responsible use can improve the business file, opening doors for higher lines of credit with more favorable terms and rates.
2. Open Trade Lines with Vendors
Aspiring entrepreneurs should prioritize building strong business credit. Doing so enables their new enterprises to secure funding from lenders and vendors while attesting to their creditworthiness.
An effective strategy to establish business credit is by opening trade lines with vendors who report to business credit bureaus. Such vendors offer payment terms on purchases made and report back any positive payment history or history to these agencies. These vendor accounts often come without the requirement of personal credit checks or founder guarantees, making them an efficient way for businesses to build strong business credit profiles faster.
3. Request Net-30 Payment Terms
As you create an invoice for a coaching client, payment terms such as «Due on Receipt,» «Net 15,» or «Net 30» will appear. But what exactly do these phrases signify?
Offering net terms to clients is like issuing small business loans without the collateral and interest requirements that banks and credit card companies impose; however, this type of payment arrangement increases the accounting team’s workload by reviewing credit applications, screening clients, and manually tracking discounts, late payments, and collections. Unlocking financial independence through strong business credit is a boon for entrepreneurs. Learn how to build business credit without using personal debt as leverage.
4. Monitor Your Credit Reports
As your business expands, it is critical that you monitor its credit reports. Just like personal credit histories are used by banks to assess eligibility for loans and credit cards, so monitoring company reports is also vitally important.
Establishing a Dun & Bradstreet (DUNS) number can assist lenders in understanding your company’s payment history and allow lenders to see its lender profile. Furthermore, encouraging your vendors to report payments directly to business credit bureaus could help even further.
Building and monitoring an exceptional business credit profile can help your company access funding, negotiate better vendor terms, and fuel growth without tapping personal assets for support. Here are five simple tips that can help your organization achieve financial independence.
5. Pay Your Bills on Time
Establishing business credit can be an invaluable asset to new entrepreneurs, opening the door to endless possibilities. Establishing credit can be accomplished in several steps: applying for an EIN and opening bank accounts, registering for a business credit card, and encouraging vendors to report payment history to credit bureaus.
Establishing separate finances between personal and business finances is also vital to increasing access to funding for an expanding company. Establishing net 30 terms with vendors and making payments on time will help establish your business credit profile, while Nav is now offering an innovative solution that helps business owners build and monitor their credit profiles in one central place.
6. Diversify Your Credit Sources
Establishing financial independence through strong business credit can be transformative for entrepreneurs, opening doors to better loan eligibility, supplier terms, and growth without jeopardizing personal assets.
Make sure your company’s vendors and lenders report to business credit reporting agencies so you can build its credit history and qualify for loans, lines of credit, or preferential lease rates. As it demonstrates that a business exists independently from its owners, incorporating can help limit any negative events from having an impactful effect on one’s personal credit history or score.
7. Apply for a Business Credit Card
Business credit cards that report to business credit bureaus are an effective way to build and strengthen your company’s creditworthiness. Just make sure you select one issued to the EIN number of your business, without needing personal guarantees as security.
Make sure your balance is paid in full every month while keeping credit utilization under 30 percent of its limit. Regular and on-time payments will help your business’s credit score, while any late payments or delinquency could harm it. Establishing business credit takes time but is a vital element to its growth.
8. Make Payments on Time
Establishing and maintaining a strong business credit history and score requires on-time payments to show lenders, creditors, and suppliers that your company is reliable in repaying debt over time.
New small businesses typically rely on personal accounts and credit to finance their operations until business credit can be established; however, this can be risky because it makes the owner personally responsible for corporate debt, impacting lending approvals, interest rates/terms, expansion opportunities, etc. By following these simple tips, new entrepreneurs can establish business credit and better separate their personal from corporate finances.
9. Don’t Use Your Personal Credit
Use of personal credit to establish business credit can jeopardize personal assets. Separating personal and business finances is the best way to protect both. Establishing separate accounts, working with suppliers that report payments directly to business credit agencies, and applying for business credit cards under company names are all ways you can demonstrate professionalism to lenders.
As entrepreneurs often rely on personal credit when starting new businesses, it’s essential that they remember that using this line of credit could be risky. Tying corporate debt to your own personal credit score makes you personally responsible if the business defaults and fails to repay its obligations.
