How Small Business Owners Establish Commercial Credit

Owners of small businesses build long-term success by establishing a solid credit rating. The good news is that there are relatively easy ways to achieve that all-important goal without losing your sanity along the way. New owners become rightly concerned with minimizing costs and saving money in any way they can. The trick for many is to leverage the power of saving to build up a commercial score at the same time.

The process begins with a knowledge gathering phase in which you check personal credit scores and make sure all the bureaus have correct information in your file. After that, it’s essential to avoid doing anything that could damage your financial profile, like cosigning on certain kinds of loans, filing for bankruptcy, or borrowing money. Strive to pay all bills before they become due and get a business credit card. Finally, be sure to build a functional website, work with vendors to establish small lines of borrowing, and apply for a DUNS number. Here are more details about how the process works.

Monitor & Update Your Information

Check with all the personal and commercial reporting agencies to make sure the information they have in your file is correct. Don’t forget to investigate the many online listing services that offer short business descriptions for interested parties. Start by entering your company’s name into one or more search engines. The goal is to find incorrect basic facts, like the spelling of the firm’s name, the official address, phone, email, social media sites, and anything else that is not right.

Contact the service, agency, or financial institution and let them know, in writing, that there is an error, and you want it to be corrected asap. Once you’re satisfied that the task is complete, place a reminder on the calendar to look for errors at least once every three months. The chore can be frustrating at first, but the effort pays dividends. One or two small mistakes can jeopardize your organization’s chances for borrowing.

Be Careful About Cosigning on Loans

One of the most frequent questions among entrepreneurs id does cosigning a student loan affect my credit? Those who own businesses and raise families at the same time have to deal with all sorts of financial challenges. One of the main ones is figuring out how to pay for a child’s college education. Because young adults rarely have the financial history to get loans on their own, you might be tempted to serve as a cosigner on the application. While it’s quite tempting to agree, be sure you understand all the implications before signing the document.

Whether it’s for your own child or someone else, when you become a cosigner, there can be repercussions for your personal and commercial credit situation. Being a cosigner is easy and convenient. It is one of the most common ways that parents assist their kids with paying for a four-year degree program. However, there are some essential facts you should consider before doing it because it can directly impact your ability to borrow money in the future.

Steer Clear of the Bad 3

Judgments, bankruptcies, and liens can be like poison on a financial record. A large percentage of lenders won’t even consider an application from an organization that has recent black marks like the Bad 3. If you have had any type of bankruptcy in the past, speak with a lawyer to find out how long it will be before you can successfully apply for credit. Liens and judgments are not as bad but can be frustrating for anyone who needs capital for a commercial venture. Avoid getting into trouble by paying every bill on time or early. If there’s a dispute, be sure to get proper legal representation so that the creditor does not send the account to collections.

Be Early with Bill Payments

Unlike personal credit bureaus, the ones that oversee businesses pay attention to early bill payments. The assumption is that an organization that pays everything a few days ahead of time has sound financial practices and is fiscally stable. To get the most out of the situation, set all your accounting software to pay bills at least a week in advance. It can take up to six months before the agencies see your company’s behavior, but the change can have a positive effect on your overall scores.

Get a DUNS & Maintain a Website

Getting a DUNS identifier number puts your entity on the radar of financial institutions, government agencies, and even search engines that keep track of official filings. The same is true, in a smaller sense, for having a professional corporate website.

Negotiate with Vendors

Develop a good working relationship with two or more of your go-to vendors. Let them know that you are on a mission to build a financial history as a company. After proving to them that you pay on time or early, ask for a small line of credit. Also, be sure to inquire about their reporting practices to assure yourself they will report your activities to at least one bureau or commercial agency. After a few months of using the line and paying every debt early, ask for a small increase in the amount. Continue this way for a year, with the hope that your excellent performance as a debtor will eventually reflect in a higher rating. Many individual owners use this vendor technique and get positive results. But it takes time and perseverance.

Choose Lenders Carefully

Once you get to the point where you can get commercial loans from a few lenders, be sure to shop very carefully. Not all entities report to all the major bureaus, and the landscape is a bit different than in the retail segment. The only way you can know is to ask each prospective lender about their reporting practices. You’ll likely be surprised to discover that some don’t report at all, while others report to just one or two bureaus. What’s the best way to proceed in this instance? Fill out applications with institutions that report to every bureau. The strategy is a fast way to build your financial reputation in the commercial lending universe.