What started as a two-week lockdown at the start of COVID-19 quickly escalated into a global crisis. Of the U.S. businesses that temporarily shut their doors, nearly 100,000 closed shop for good just six months into the pandemic. Understandably, the small business community was shaken to the core, and entrepreneurs are still rebounding from the events of 2020.
For those who overcame the trials of the last year or are trying entrepreneurship after employment changes, building up business credit is a must. Here are six ways to go about it:
1. Separate Your Business and Personal Accounts
If you’re using a personal account, especially your own credit card or debit card, to build your business, your efforts are only affecting your personal credit score. While it’s great to strengthen your personal credit, you’ll want to get a separate account so you can build up your business credit.
Start by making your business official if you haven’t already. For a young business, an LLC is usually the best way to go. Register your business name and establish a business identity so that credit can be associated with an actual company.
Once you’ve done that, look at opening a business bank account. You’ll need your business tax ID number and the documentation of your business registration for this. You can open a business account at your current bank or an online one. When your account is set up, use a card with this account for your business expenses. Cards with associated apps allow you to monitor your transactions in near real time.
2. Get a Secured Credit Card
Regularly using a credit card is one of the best ways to build up credit. By getting a card exclusively for your business, your credit history will start to grow and boost your credit score. If your credit file is currently thin, look at a secured credit card as your first option.
A secured credit card is a great starter card because you don’t need a long credit history or a good score to qualify. Credit card companies can offer these cards with a deposit from the holder as a sort of insurance policy. The application process isn’t as strict, and you can still build up your business credit by using one regularly.
As with a personal credit card, your use of a business credit card can damage your credit just as easily as build it up. Strengthening your business credit will depend on wisely managing your spending and making on-time payments.
3. Work With Vendors
If your business regularly works with vendors and suppliers, speak with them about opening a line of credit. Credit bureaus consider Net-30 payment terms as akin to a short-term loan. That means that being extended this credit and paying it back promptly can enhance your credit history.
Of course, this can only happen if your transactions with your suppliers are reported. Before committing to a vendor, make sure they report to business credit bureaus. Otherwise your payment history with them won’t do your credit-enhancing attempts any good.
Naturally, credit reporting shouldn’t overshadow important vendor selection criteria like high-quality products, reliable delivery, and competitive pricing. Still, you’ll definitely want to keep reporting in mind if building your business credit is a top priority. Working with multiple vendors will give you even more positive payment history to add to your credit report.
4. Keep an Eye on Your Reports
Given how crazy 2020 was for everyone, there’s a chance there were some mistakes made on your credit report. If you operated a small business in the last year, cross-check all of your invoices, transactions, and financial history with your report. You’ll want to ensure that everything tracks.
Finding and reversing a simple error could be a quick way to give your credit score a boost. Besides, if the error wasn’t your fault, you deserve to have it fixed right away. The sooner you can identify and report errors, the more likely you are to have them reversed.
Bear in mind that there are three major credit agencies to look at. Equifax, Experian, and Dun & Bradstreet are the three major bureaus when it comes to business credit reporting. Keeping tabs on your reports with all three will help ensure that no errors slip through the cracks.
5. Apply for a Loan
Debt is never fun to work with, but it can be necessary for businesses looking to grow. Plus, paying off a loan successfully adds another element to your credit-building efforts. It can give those efforts an additional push as you rebound from 2020.
Now, before you rush over to the bank, make sure you can handle a small business loan. Debt payments are one of the surest signs of good or bad credit. Make timely payments and you’ll be rewarded; fall into arrears and you’ll be punished.
You might well need a loan to recover from the events of 2020. Just make sure that your business is in a position to handle the monthly payments in a timely manner.
6. Get Going With Automation
Getting your business credit moving requires activity, and only of the good kind. You can set yourself up for success by using automation.
Your business credit card won’t help you much if it’s doing nothing but leaving an imprint in your wallet. Automated spending ensures that your card is always being used without ever overdoing it. So put a minor monthly expense (e.g., your water bill) on your credit card, and set up autopay to pay it back. You’ll create an active credit history while avoiding the risk of forgetting to pay your bill.
You can automate payments with your vendors as well. An automated payment will always go through on time, guaranteeing that no late or missed payments leave a blemish on your record. Any other payments associated with your business, such as loan repayments, can also be automated. This allows you to focus on the inner workings of your business while your credit grows. If keeping track of all your payments becomes an issue, there are a number of apps out there that can assist you with staying up-to-date on each automatic transaction.
The credit-building process is a slow one, but following these steps will speed things along for you and your business. By the time 2022 rolls around, you’ll have the credit score you need to mold your business for the future.
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