Business Debt & Credit

Build Business Credit Similarly to the Way You Build Your Personal Credit

Build business credit in a manner similar to building your personal credit, which is by opening bank accounts, signing up for credit cards and, when possible, taking out loans and paying them back on time to show that your business is creditworthy.

Here are 10 tips to help you build business credit.

Build Business Credit

1. Pay all of your bills on time-suppliers and vendors, credit card bills, the complete works.
2.Develop a credit history of being a responsible and reliable business person whom the bank can feel comfortable that you will pay your bills.
3.Demonstrate a positive cash flow over many quarters in your business. Banks love to lend money to people and companies flush with cash. You are probably asking, if you are with cash, why do you need a bank loan? But that is how the banks are.

4.Research banks that you want to do business with. There are local banks and credit unions with branches and also online banks. You may be able to develop a relationship with a local banker, which can be a valuable asset to you. Online banking offers you convenience, but by working with a local bank and banker, you may be able to have the relationship and tap the expertise while still having online banking convenience.
5.Keep all of your credit accounts well under control. Bankers hate maxed-out credit cards of individuals and businesses. Keep the balance on your credit cards under 30 percent of the amount available to borrow.
6.Don’t take out new credit cards for the sake of having more credit cards, if you can help it. New credit cards seem to hurt your credit score in at least the short run.
7. Don’t close credit card accounts…”retire” them. If you have a credit card that you will not use, simply cut it up with scissors and dispose of the plastic, but keep the account open–unless there is an annual fee for that card. By closing an account, you are reducing your “available credit,” which will lower your credit score in the short run.
8. Do check out your personal and business credit report and credit score to see where you are.
9. Never mix business and personal expenses. Even if you are new to business and have not yet received a business credit card, use one of your personal cards for business expenses only and the others for personal expenses.
10. Start small and build. Do not expect to receive hundreds of thousands of dollars in credit lines overnight. Start small and grow your credit lines over the years

Business Credit and Cash Flow

Business credit and cash flow issues are the scourge of the new small business and that is why so many new businesses go out of business the first year and over the first five years.

If you are starting a new business and you are not wealthy, control all costs as though your business life depended on it–because it does! If possible, work out of your house to save on rent. Hire temps rather than permanent employees, keep all costs low so that you can preserve whatever cash you have until business volume and strong cash flow allow you make changes in how you are doing business.

Meanwhile, set up business bank accounts– checking account, business savings account and, over time, apply for a business credit card, a business line of credit and a standard business loan, if one is needed. Work closely with your suppliers and vendors to set up credit accounts. If you are not known to them, it will take time to develop a credit relationship with them.

For example, as you go into business and print up business cards, stationery, envelopes and so forth, the printer will probably want to get paid at the time he or she turns over your order to you. Over time, he or she will probably give you 30 days to pay. Some of our readers who are in the consulting business report that the major corporations that they are doing business with are now demanding 120 days before payment. This is unconscionable, but a fact of business life today. That is why it is so important for you to develop strong relationships with your bankers as quickly as possible. Long-time business people say: “You haven’t lived until you have to meet a payroll on Friday.”

Depending on your business and the way you set it up, chances are that your bankers will always demand that you be personally liable for any debt that your company has.