Just like with individuals, there are many benefits for businesses with good credit. At Palmetto Payroll Solutions, we want to take away the mystery and the confusion associated with building small business credit, and show you the path to a better financial future for your business. A few of the benefits of having good credit for small businesses include:
- The ability to get better interest rates from both banks and lenders in the future
- The potential to receive better payment terms with vendors
- Reducing the amount of pre-payment required for supplies and services
Once you build your small business credit, you’ll want to nurture your credit and keep it high, and we have solutions that can work for both building your credit and keeping it just where you want it to be. For small businesses just starting out, these methods can be used to help build your credit with or without a business accountant.
Making Use Of Your Suppliers
For small businesses that invest in inventory, ingredients, or other materials from third party vendors, you can use your supplier relationships to help to build up your small business credit. If any of these suppliers offer trade credit that allows you a predetermined time period between receiving your orders and paying for them, you can ask these suppliers to report your payments and payment history to a business credit bureau. As long as the trade agreements are adhered to, this will help help to build your business credit using a service or system you utilize already.
These trade lines don’t even have to revolve around things like inventory or ingredients, and can be managed for things like office supplies or refilling the water cooler.
Making Payments And Sticking To Agreements
Just like building personal credit, building business credit will depend heavily on making your payments on time and sticking to any payment agreements that may have been set up with suppliers. No matter the credit bureau, which may use different tools to come up with your business credit score, all 3 heavily prioritize your on-time payments an ability to follow through on payment plan agreements or terms. Even better than paying on time is making payments or paying off business related debts early, which can help you to build a better business credit score more quickly.
Also similar to building personal credit, the history of your credit will have an impact on your score. Beginning these payment plans and agreements with vendors as early as possible is recommended for small businesses that want to become established in their credit quickly.
Know Your Small Business Loans
Small business loans will help you to establish yourself in your business from the ground up, but not all lenders report equally. Many small business owners assume that making payments on their small business loan is automatically adding to their small business credit score, but this isn’t always the case, as some lenders actually don’t report to the 3 credit bureaus at all. Before taking out a small business loan, make sure to investigate the lender in question, and only choose a lender that will report your payment history to a business credit bureau.
A safe route to take to ensure you’re taking a loan from a source that will report is to go through a bank, as most banks will report to credit bureaus, but this can be tough for businesses that are trying to improve a blemished credit history or building credit from the ground up. In these instances, small business owners may turn to online lenders specializing in loans for businesses with a less-than-stellar credit history, and while some of these lenders do report, this is not equal across the board.
Apply And Start Building Early
Many small businesses will only apply for a credit line when they need it, but we suggest thinking about your credit line much earlier. Right when you start up, apply for a small business credit line right away, and even if it’s small, make good use of it. Banks typically reserve larger credit lines for businesses they can see have been established for around 2 or so years, so if you wait you may not be able to receive the credit line you need when you need it. By starting out early and building credit right from the get-go, even with a store credit card used only for supplies, you can establish yourself and begin building your business credit directly from the start.