Building good business credit is a vital step toward long-term success, yet many contractors make critical mistakes in this area--often without realizing it. Whether your company is a one-man service and repair business or a multiple-office general contracting firm, it needs cash to grow.
Obtaining cash on good terms requires a history of responsible borrowing and timely payments. Your business credit score plays a large part in financial strength of your business and creates lending worth.
We'd like to offer a few tips to help:
1. Keep your business and personal finances separate.
Good bookkeeping is important, because it helps you document your sources of capital when it comes time to apply for a business loan. Open a dedicated checking account for your company, and deposit customer payments into this account.
Avoid making business purchases from your personal checking account. Instead, when you need to contribute capital to your business--that is, when you need to contribute your own money out-of-pocket for business expenses--deposit the money into your business account and write the checks from there.
Likewise, when you want to use business earnings to pay personal bills, either withdraw or transfer the amounts as lump payments to yourself, and then make the payments from your personal checking account. This helps establish your business as a self-functioning financial entity.
2. Monitor your business credit profiles.
There are three major bureaus that report business credit--Dun & Bradstreet, Experian, and Equifax--and you'll want to register a profile with each. You should periodically check in with these organizations to make sure that your lenders are accurately reporting your payments and outstanding balances. Be sure to promptly dispute any inaccuracies you discover, and monitor for signs of fraudulent activity.
Ensure that your business credit report information is accurate and up-to-date. Check your payment history, if there are no late payments your credit may be good for a business loan.
3. Obtain a business credit card.
Use this account strictly for legitimate business purchases. Make on-time payments, and save your receipts and credit card bills. You'll minimize unnecessary interest by paying down your balance at the end of each month, but periodically carrying over a small balance from one month to the next isn't a bad idea either. It helps create a history of responsible financing.
You should also request a credit line increase once in a while--even if you don't plan on using it. So long as you're not in the habit of maxing out your card, a high credit limit is a good thing.
4. Negotiate terms with your suppliers.
As you do repeat business with certain key vendors, you'll want to apply for payment terms that enable you to receive goods or services now and pay later--usually between two and four weeks after receiving the bill.
Your on-time payments of such vendor accounts will build good credit references for capital loan applications. Build credit with companies that report trade information as there are companies that do not report this information and can hinder your credit opportunity and growth.
Bonus: Consider incorporating.
Business credit is inextricably tied to small business owners' personal credit histories unless they incorporate. That means knocks against your personal credit adversely affect your company's ability to obtain credit, and vice-versa.
Corporations are recognized as separate tax-paying entities with credit histories independent of their owners', and they generally qualify for more generous financing terms than other business organizations.
Incorporation is a major business decision, however, so you'll want to consult with a qualified business planner to weigh the trade-offs and determine whether you're at the right stage for this move.
Building Good Credit is a Priority
We know that building good credit is a priority, especially when obtaining a business loan for contractors and small businesses. Your business credit report is constantly changing due to your transaction history. This change reflects the number of reported transactions, outstanding balances and prompt payment.
If you're in the market for a capital loan at premier rates, you'll appreciate Express Capital's high approval rate and same-day funding. We can get you up and running quickly and help build your credit at the same time--without breaking the bank.
For questions regarding your business credit and to see if you can qualify for a small business loan, connect with a Express Capital Specialist who can answer all your questions.
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