Having good personal credit is a hallmark of proper financial planning. Small businesses also need to have excellent credit ratings if they intend to use the company's reputation to expand.
For smaller companies that don't have angel investors, having a positive credit rating could impact the company's growth and development over the long term. Building good company credit requires understanding how business credit works and how enterprises establish their credit reputations within the financial space. Bad credit ratings can doom a company and may be nearly impossible to recover from.
To help, 13 experts from Forbes Finance Council offer valuable insight to companies on developing proper borrowing habits and building a company's credit rating through smart investment.
1. Focus On Your Personal Credit
Unless you have strong financials and half a decade of history, most credit grantors will require a personal guarantee. Don't overload your personal credit to fund your business or just to build business credit. Be a wise consumer of credit and lenders will be able to determine that you are a good risk. - Vlad Rusz, Vlad Corp. USA
2. Establish Company's Credit History
You must first establish a credit history for your company, one that rests on the strength of the company alone. A simple method is to obtain a credit card in the name of the business. You may initially need to become a co-signer on the credit card. However, your goal is to remove your name and tax ID from it completely, where the card is strictly in the company’s name. - Justin Goodbread, Heritage Investors
3. Form Good Credit Relationships With Vendors And Clients
Small business owners should aim to form healthy credit relationships with well-established vendors and clients. They can, in turn, utilize their credit references to build their reputation and credit standing. Once you establish good revenue streams and a history of paying vendors on time, attempt to update your own credit report with bureaus such as Dun & Bradstreet and monitor your progress. - Geanette Rodriguez-Ojeda
4. Buy From Multiple Vendors
Buying from more than one source achieves several benefits. First, it increases the number of positive credit reports (assuming you pay bills on time). Second, it reduces your risk of being tied to one vendor should they experience an issue with delivering products. Third, it ensures that you have better insight into product pricing, especially for products that are tied to raw material costs. - Chris Tierney, Moore Colson CPAs and Advisors
5. Work With Vendors That Report To Credit Bureaus
A great way to build your business credit is to work with vendors that report payments to the credit bureaus. Similar to asking your personal landlord to report your rent payments, vendors can report payments to build your credit. Discuss with your vendors whether they already do, or if they would be willing to report the payments. Then, make sure you make on-time payments with the vendors. - Jared Weitz, United Capital Source Inc.
6. Make Sure Lenders Report Your Business Credit
Ensure that money you borrow for your business is reported on your business credit report, and ask lenders up front during the application process where your loan will be reported. With so many alternative, unregulated lenders these days, you would be surprised how many are only reporting on your personal credit report, or not at all. - Luz Urrutia, Opportunity Fund
7. Borrow Within Your Means
Create the self-discipline to borrow what you know you will be able to repay in a timely manner. This will help you build a strong FICO score, which in turn will allow you to borrow at the most competitive rates. - Manuel A Vidal, Premium Finance Group
8. Start Small
I suggest starting small -- establish lines of credit with things that you need and use all the time for your business. A good example is office supplies. Office Depot will help you establish a credit account and allow you to purchase your supplies via credit. Making small purchases and timely payments will aid in establishing good credit. - Keith Gregg, Chalice Financial Network
9. Check Your D&B Credit Reports
Small business owners should obtain copies of their Dun & Bradstreet corporate credit reports and verify the information is accurate, both from a corporate information standpoint, as well as creditor reports and any UCC filings. It’s surprising how incorrect information may make its way onto corporate credit reports so it’s important to ensure the data about your creditworthiness is accurate. - Tianyi Yu, Skylight Investment LLC
10. Start With Your Bank
Your personal credit doesn't help you establish business credit, so you could be turned down for even small credit cards in the beginning. Open a business checking account with your bank. Then apply for a small limit credit card with that same bank. Use your business checking to pay those credit card bills in full each month. You'll soon have a good credit record and can apply for other cards. - Danielle Kunkle Roberts, Boomer Benefits
11. Get A Business Credit Card
The easiest way to build business credit is to acquire a business credit card. Even if the credit limit is small to start, by using the credit card and paying the card in full each month you can quickly build credit for your business. This will also help keep business expenses separate from your personal credit card. - Atish Davda, EquityZen
12. Pay Everything On Time
A great way to build credit for any company is to pay every bill on time. Creditors want to know that you're responsible and will pay them back, before they'll take a risk and lend you money. Want to easily boost your credit score? Use your company credit card but pay it off in full every month. Doing so can raise your score significantly in a relatively short time. - Jeff Pitta, Medicare Plan Finder
13. Pay Off Credit Cards On A Weekly Basis
I have found the best way to build business credit is by paying off business credit cards on a weekly basis. When we first started, I would always make sure that all our business credit cards were paid off every Friday no matter what. Even as our company grew and our credit grew along with it, we made sure to pay off the credit cards every Friday. This is something we still do to this day. - Gregory Gurbikian, Healthcare Solutions Direct, LLC
