Establishing a good credit profile is essential for small businesses. It not only helps you to obtain financing that can grow your company, but also assists you in getting reduced insurance premiums, lower interest rates, and better payment terms with your suppliers. Here are the steps you should take to create a strong credit profile for your business.
Obtain an Employer Identification Number
An employer identification number, or EIN, is issued by the IRS to identify your company for tax purposes. It is also useful when you apply for a bank account, credit card, or loan for your business.
Use a Business Credit Card
A business credit card helps you separate your personal and business finances and also builds your business credit rating. Some cards even offer you rewards such as travel points or cash back. To improve your credit profile, be sure that you are responsible for your repayments.
Build Credit with Suppliers
Work with suppliers who offer you trade credit and report payments to the credit bureaus. As long as you honor the terms of the agreements you have made with your suppliers, this will boost your business credit rating.
Use Only Lenders That Report Your Payments
Not all lenders will report your payments to the business credit bureaus. If you need to take out a small business loan, be sure to work with one that does.
Make Prompt Payments
To improve your business credit score, always pay your creditors on or before the due dates. Additionally, when you are using lines of credit or credit cards, watch your credit utilization ratio, which is the percentage of credit available to you that you use. Your credit utilization ratio should be no more than 20 to 30 percent of your limit.
Monitor Credit Information
It is important to periodically monitor your company’s information with the major business credit bureaus to be sure that it is accurate. If you detect any errors, you can work with the bureaus to correct them. Do everything you can to avoid negatively impacting your credit history with liens, judgments, and bankruptcies.
For more advice on building strong business credit, contact 18 Sierra Financial.