The Business Credit Catch-22

Young businesses will likely find that it can be difficult to build business credit when they’re consistently being denied credit due to little or no credit history. It’s like trying to get a job with no job experience. Lenders want to see that you have a credit history first, but you’re unable to build a credit history without first getting approved for credit.

Due to this “Business Credit Catch-22”, it’s important to start with the basics, at which point you can then start to build your business credit, increase your business credit score, and grow your business.

Watch Your Personal Credit Score

If you’re a young company without a credit history, many lenders will look at your personal credit score and credit history to verify your credibility. Therefore, you must maintain a good, personal credit history when your business lacks credit history. Also, any stakeholders owning 20% or more of the company could also have their credit history checked and should be mindful of their credit scores.

Setup A Business Entity

When attempting to build business credit, you must have a business entity. Running your business as a sole proprietor will greatly reduce the chance of lenders approving a business loan or line of credit. In other words, setup your business as an LLC or corporation to separate your business’s finances from your own.

Create A Business Bank Account Early On

Setup a business bank account – if you haven’t set up a business tax ID then you’ll need to do that first – the sooner you have a business bank account, the better. Most lenders will want to see that you’ve had a business bank account for at least 2 years before approving a loan. More importantly, though, will be your bank account activity. Maintaining a steady average balance, the higher the better, will help when applying for a business loan.

Make Sure Your Payment History Is Being Reported

Ensure you’re listed with the credit reporting agencies. Make sure trade vendors are reporting your good payment history. Trade vendors are not required to submit your credit or payment history and may neglect to do so if you do not follow up with them about it.

Check your business credit report, at least annually, to ensure the information on it is correct and up-to-date. If you notice fallacies, they should be disputed to ensure your business credit isn’t tarnished. A business credit repair company, like Credit Absolute, can provide assistance with these disputes to make sure your business credit report is accurate, ensuring the best possible credit score for your business.

Get A Business Credit Card Early On

Open a business credit card, even if you don’t need it, as it will help to start building your business credit early on. Request increases in your credit limit whenever possible, even if you don’t need it. It can also help to have accounts with multiple lenders. Keep the balance low in comparison to the limit (the balance shouldn’t exceed 50% of the credit limit whenever possible). Always make payments on time or early.

Business credit cards are much easier to get approved for versus a business loan and can help to build business credit. Just be sure to use them, but use them wisely. Creditors are going to look at payment history, so if you’re not using your business credit cards at all, then there won’t be payment history.