Any business owner needs easy and reliable access to a cash stream. For some, their own liquidity reserves are sufficient for their needs. Others may find that their liquid cash reserves are lacking or they may be uncomfortable with using them to smooth the day-to-day running of the business. If you fall into this second category, you may wonder, ‘what is the alternative?’. The answer is business credit.
The Importance of Business Credit
Many business owners turn to credit only when their liquid cash reserves have run dry. This rarely results in them finding the best and most competitive sources of credit. It also runs the risk that they will mix up their personal and their business finances. It is preferable to plan in advance and build your company’s credit in order to maximise the chances of being offered the best credit deals. Here are six suggestions to help you do this.
1. Plan Well & Set Clear Objectives
When opting for corporate credit as means to finance your business, you will have to prove that you will be receiving a stable level of income. In order to do this, you need to forecast what potential your business will have. Create a well presented business plan and invest in market research.
2. Set Up A Limited Liability Company
Establishing a formal business entity, usually a limited liability company is an essential part of beginning to build a credit profile. You can use an existing entity provided that entity is not hampered by its own poor credit history.
3. Investigate Credit Coaches
Business credit coaches can be invaluable both when it comes to teaching you how to build your business credit and in assistance you with the technical and administrative side of things. Building a good credit history takes time and effort. As a business owner you may struggle to find the time to chase up matters such as ensuring the removal of incorrect or outdated information from your personal credit history. This is the type of thing that a business credit coach can assist with.
4. Apply For Credit In Your Company’s Name
Your business cannot build a good credit history unless you apply for credit in its name. Moreover, you must use that credit and pay it off in full and on time. Initial credit rejections are to be expected and this is something else to ask for assistance from a credit professional. The coach may suggest that you agree to co-sign for credit lines.
5. Business Credit Cards
Once your business has a credit history and a credit score, it is time to apply for business credit cards. As with other lines of credit, it is important in the early stages to make payments in full and on time.
6. Best Practice For Using Credit
As time progresses, you may wish to use your credit to help build your business or sustain it over a rocky patch. While this is why you built your business credit, always proceed with caution. Do not be tempted to over-extend yourself by maxing out your cards or taking out more lines of credit than you can repay comfortably. Finally, the rule of making repayments on time still holds good.
The Creditor’s View
Remember that a creditor considering whether to offer you business credit will evaluate your enterprise. Its earning potential and stability are crucial to this assessment. You can help by ensuring you present the business as a separate enterprise from your personal life, with its own website, email address, telephone line and bank account.
Check out our detailed guide for business borrowing.