Taking steps to build a credit profile for your company, separate from your personal credit history, you may be able to access ten to 100 times more credit than you could as a consumer. On average, a business owner uses at least ten times as much credit as a consumer. It’s nearly impossible to run, let alone scale, a business using personal credit alone. What’s more, building business credit is easy to do, but too few business owners realize its importance.
1. Establish your business as a separate legal entity.
The most common forms of business are the Sole Proprietorship, Partnership, Corporation, S corporation and Limited Liability Company (LLC). Sit down with your tax advisor or financial planner to determine which legal entity fits your business and financial situation.
2. Set up a business checking account.
It keeps your business financials organized and allows you to get a clear picture of where your money is going. It usually takes just 30 minutes to set up an account at your local credit union. Use the business account for all business-related expenses. When paying yourself, deposit the money into a personal checking account. Your business checking account also allows your business to use employee payments as tax deductions from income while letting you show personal income for the purpose of loans, credit, and taxes. Business lenders will want to see your bank statements to get a true picture of how you’re performing.
3. Build a business credit history.
Start by opening a business credit card and always paying on time. The business credit bureaus will add this positive payment history to the credit file dedicated just to your company. Unlike personal cards, you may be able to deduct interest from business credit cards. One of the biggest mistakes new businesses owners make is relying on personal credit cards to fund operations. Not only do you take on liability; you can damage personal credit. Along with getting a business credit card, you should also open credit lines with your vendors and suppliers; this is known as trade credit. It gives you extra time to pay for your supplies and services. As you establish a consistent history of on-time or early payments with these suppliers, your business credit scores will improve. It will allow you to access even more credit with even better payment terms.
4. Monitor your business credit regularly.
After establishing healthy business credit, you’ll want to stay on top of it. Lenders and creditors reassess your company’s creditworthiness on an ongoing basis. If your credit deteriorates, terms can be adjusted or stopped altogether. Without notice, you could be forced to pay cash on delivery for your supplies in place of your normal 30 days payment cycle. Regular monitoring helps avoid these nasty surprises. As a small business owner, you may feel like the odds are against you. Start building a strong business credit profile separate from your personal credit. Taking simple and proven steps, you’ll access more financing from more sources, and at better rates. Your credit will start to open doors rather than causing them to close.
You have to stay on top of credit. The reward is huge. Grow your business dream into a reality. Click here to view rates. To learn more about CSE Business Lending call 337.562.3141 or visit the Main office location and speak with Jim today!