Smart Credit Repair Tools for Building Credit for Your Business
Once you repair a bad credit history and you learn about credit repair techniques,
or perhaps you have undergone credit repair training to get your business back on track,
then it is time to think about permanent credit repair by building up your business credit rating again.
Once you have had a credit clean up, or you repair bad credit history,
the best way to stay out of another financial mess is to grow your business with increased sales and profits.
One of the important steps in growing your business and giving your business the edge it needs to be competitive and succeed in the hash world of business…
…is to establish your business credit.
Here is the Deal:
Some people reason that business credit does not really apply to their business and it’s only needed when they are trying to get funding.
Business credit is much more than that.
As a matter of fact, it is an influential tool that is capable of helping you save money, and form commercial relationships that will be valuable to your business in the future.
Eventually business credit will aid in your business growth and expansion.
Having said that, it may be difficult to understand business credit and how to establish it.
This guide serves to explain the subject matter as well as make available, clear, concise advice on ways to grow business credit that benefits your business over time.
Basics of Credit For Small Businesses
Let us begin with how you are making your payments.
Do you combine personal credit with supplier financing?
Perhaps you also adding a business loan or lease equipment together?
Do you purchase supplies for the office with a personal credit card?
Is the telephone account attached to your personal name while having some supplies that lengthen the agreed terms of payment?
When you are not consistent with maintaining payment processes,
it could lead to you losing out on vital opportunities to build a firm business credit profile.
According to small business financial and legal expert Barbara Weltman, author of “The Rational Guide to Building Small Business Credit”…
…if you have a solid reputation of paying creditors steadily,
it enhances your borrowing power.
Other companies find it easier to extend credit to your business.
The importance of maintaining a personal credit profile that is clearly separate from your credit business profile cannot be overemphasized.
As stated by Weltman, separating the two helps in building business credibility before the banks, creditors and suppliers.
If your business profile includes several positive reports from vendors,
financial institutions, lessors, telephone accounts, utilities and other functional credit accounts being operated in your company name…
…it demonstrates your company’s timeliness in paying its creditors.
Furthermore, separating your business from your personal credit profile,
protects you personally in the event of any occurrance of financial disaster in the business.
On the other hand, it can also help protect your company from anything that could possibly affect your own credit negatively.
Knowing How Credit Reporting Bureaus Work
In developing a business credit, your credit bureau report is at the very core of it all.
these agencies have an extensive variety of sources from which they collect credit data.
Next, they use the info collected to create a profile illustrating the history of your business in terms of meeting its financial responsibilities.
This aids potential creditors making a decision on whether or not to risk extending credit to your firm.
Although standards differ by bureaus, the majority of them have simplified the reporting of this data.
There are cases where businesses have the ability to report information regarding themselves.
However, for the sake of maintaining integrity of data,
some agencies only make use of information that a third party has verified, thereby ensuring that reports are unbiased.
This also provides a level playing field for all companies.
Mostly credit companies, banks, and other financial institutions regularly report payment patterns to credit agencies.
Nevertheless, the author of “The Complete Idiot’s Guide to Credit Scores”, Lita
advises that you ask business partners and suppliers to also report payment patterns,
so as to ensure you’re completely covered.
You Might be Wondering:
How important is a credit profile for business?
There are primarily two major functions of a good business credit profile:
- It makes it easier for your company to have access to the credit it needs at better business conditions.
- It also helps you better understand the companies you do business with.
Often time, partners, suppliers and lenders evaluate business credit profiles to help them ascertain their level of risk exposure if they extend credit to your firm.
It aids them to measure the likelihood of your company paying back in good time.
In a nutshell, it assists them in deciding if the credit profile of the other businesses should be examined,
so as to assess how financially stable a potential customer, manufacturing facility, business partner or supplier will be.
Weltman noted that assessing a potential client’s dedication and capability of making payments is a very critical but yet often overlooked step to take before providing credit.
She also said, several small business owners are usually so excited about making sales that they fail to do their homework.
Keep in mind that it doesn’t count as a sale untill you’re paid.
Ensure you have the needed profile information beforehand unless you don’t mind working for free.
But here is the kicker:
To do or not to do business with you.
Similarly, you act like a business.
Having a positive business credit profile benefits even the smallest businesses.
Once more, establish your company’s accounts ( loans, telephone,utilities, and leases) in your company’s name.
Guaranteeing payments personally may suffice in the beginning stages of your business.
However, having a more established businesiness credit history boosts your chances of negotiating and securing good credit terms.
Checklist of Tips for Your Credit Application
There wil be a need for you to fill credit applications for your vendors, suppliers and other creditors as your business grows.
These applications could be instrumental in obtaining higher lines of credit,
reduced interest rates and achieving the flexable financing needed to develope your business,
as well keep building a solid history of timely payment.
The under-listed guidlines should be followed prior to a coompleting a credit application:
Your Personal Business Credit Should be Evaluated
Reviewing your business credit profile well ahead of new credit line application is a good move.
As earlier discussed, there’s a wealth of information in your business credit profile.
Potential creditors will utilize this information in making decisions as regards to the sum and conditions of your line of credit.
This information consists of tax liens, payment history, collection activity, judgements and request for information from other potential creditors.
Endeavour to look at your profile via a creditor’s lens, studying things like:
- Trade payment history: Determine if your company historically pays it’s bills in good time or do you pay late habitually. Having late payments in the past could just be because of a momentasry cash flow crisis, however if your company frequently delays bill payments, it will not be viewed as credit worthy by creditor. Paying bills late is a big No,No!
- Red Flags: Your company’s credit report for judgements or liens should be reviewed. Having about one or two of such reports may not be a big deal although explanations as to what happened may be required. Be honest about anything that requires explanation. Maybe there was a tempory cash-flow problem, or an important menber of staff left which resulted in some black marks on the report. Addressing them up front is always better than trying to hide or ignore them. You are going to have some Splainin’ to do.
- Credit Balances: How much of your company’s total available credit is being utilized? If it’s high, it could also be a sign of warning that the company’s credit is being overstretched. Conversely, if your company balances are somewhat low compared to credit limits then it could be an indication of good financial management.
- Track record: This has to do with the length of time your company has been in operations. Companies that have established histories of paying bills promptly do not pose as much risk as start-ups.
- Get good references: Credit references will regularly be requested from your company. Make sure you reach out to your references well ahead to request their consent before including them on credit applications. If you fail to do so, you might make the person less motivated to provide you with a positive reference. It’s also possible that there might be a problem you’re not aware of – for instance an unnoticed invoice or something – that may possibly reflect poorly on your company if reported. Have 3 to 4 references available. The possible questions that could be asked by potential creditors are:
- The length of time they have been in business with your company
- The highest line of credit they have extended to your business
- The time it takes you company to pay an invoice typically
- If there have been situations when your company couldn’t pay on time.
Complete the Form
Make sure you provide all the information being asked when filling out the application.
Do not skip any section as this could bring about delays or even cause your credit line to be denied.
Now you have learnt that having a good business credit not only impacts loan applications,
but it could also be pivitol to your business growth and expansion.
It gives you access to the funding and terms of payment needed for expansion.
Most importantly helps you build trustworthy business relationships.
There’s nothing complex about implementing good business credit practices.
Just maintain a clearly separate business credit profile.
Pay creditors on time…
…make sure that the credit bureaus receive your good history of payment,
and monitor you business credit profile to discover fraud or problems.
Doing these things are sure to help in the growth of your business.
Furthermore, should you be in a position to provide a credit line to your clients.
You can leverage the same commercial tools of credit discussed above to reduce your risk of exposure.
The 4 Cs of Business Credit – Hack the Banker’s Mindset!
There are 4 major criteria banks use when they evaluate the credit worthiness of a business.
We call then the 4 C’s of Business Credit-
Character, Collateral, Capacity, and Condition.
The way different banks weight these factors differ in line with their own practices.
Putting your best foot forward when showcasing your company as a prospective borrower in each of these areas helps ease the stress level for the lender.
Before creditors and lenders extend credit lines,
they must ensure that they are entering a business relationship with companies that are trustworthy.
They do not to expose themselves to risk of fraudulent or other negative activities.
If there are any black marks on your personal or business credit payment history,
judgments, liens or other red flags…
…be prepared to provide an explanation or wait until you have accumulated steadier period of payments before requesting for new credit.
Financial institutions may require something valuable to your company in order to secure a loan.
This could be inventory, business equipment or other assets owned by the business.
Some lenders could also request for personal guarantees,
and might demand personal assets, like real estate, to secure the loan.
In genreal, the more the collateral owned by your business, the easier it is to obtain the funds or terms needed.
Lenders also need to determine that your business is capable of generating sufficient revenue to meet up with the payment responsibilities before they can extend credit to you.
For a business that is already established and has a history of sales,
this could be easy but not so for start-ups.
If your company qualifies as a start-up,
information about expected sales and expendures, together with details of how you got those figures should be provided.
Make sure that your projections are realistic as they could compare your figures with what’s obtainable in the industry.
Overestimating your projected sales or underestimating your expenses,
could suggest that you haven’t carried out your financial research properly.
Having a strong business credit profile points to a business that is in good health.
To portray your company in the best possible light,
work with your suppliers, vendors and other creditors to make sure that they’re giving a report of your timely payments to business credit agencies.
This helps in telling the story of how robustly healthy your business is.
Sometimes, creditors and lenders may decide to look into the individual credit scores of the business owners or partners,
Make room for adequate preparation before meeting with your prospective lender,
Prepare to respond to questions regarding each of the aforementioned 4 categories.
Critically take a look at your company to enable you to forestall possible hindrances,
and prepare to answer tough questions from your lender.
Preparation can determine whether your loan application is approved or rejected.
Resources For Business Credit
Increasingly, creditors have come to depend on business credit profiles to decide on businesses to extend credit lines to.
So it is extremely important for your company to develope a rock solid credit profile with a healthy history of timely payments.
A very important resource that can help your company build a good business credit,
They have succeeded in integrating advanced technology and superior data.
As far as providing data and projecting insights for business goes,
Experian has proved itself a leader,
aiding businesses in mitigating risk and improving profitability.
The company has a business database which offers comprehensive,
third party-verified information on 99.9% of all companies in the United States.
Experian has the most widespread data on the wide range of mid-sized and small businesses in the industry, as well as yours.
What’s the Bottom Line?
Do yourself and your business a favor and start building your business credit profile today.
Your business credit is an important element in the long term care of your business health.
Even if you do not feel an immediate need for a line of business credit right now it is one of those things that,
“It is better to have it and not need it, than to not have it when you do need it”.
Building your business credit should not ba a stressful endeavor.
Just consider it another cog in the wheel of your daily or weekly tasks of building a long term successful business model.
Remember what Tyler Gregory once said,
“If you don’t take good care of your credit, then your credit won’t take good care of you.”
or as Charles Buxton an English philanthropist once stated –
“In life, as in chess, forethought wins”!
So mentally project ahead seeing your business as a prosperous, healthy entity with a strong balance sheet and a great credit score.
You will thank yourself later. for the actions you take today.
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