Oct 27, 2009

Building Your Business Credit

Having good business credit is essential for any small business trying to obtain financing, especially in today's tightened financial climate. There are steps that small business owners can take to improve their credit profile and put themselves in a better position with lenders. Businesses also need to establish their own separate credit history as opposed to relying on the personal credit history of the business owners as frequently happens with new or small businesses.

According to a recent Wall Street Journal article, the three most effective credit building strategies for small businesses are:
1. Keep good books and records. Get an accountant to review your finances. This adds credibility to your business and finances for lenders. Think about forming a business entity if you're a sole proprietor. Keep your business licenses up-to-date.
2. Build your business credit through your vendors. Do business exclusively with companies that can report your credit to credit-reporting agencies like Dun & Bradstreet. Register with these commercial credit agencies and check your credit report each year.
3. Be fiscally responsible. Always pay your bills on time. When you go to borrow money, do it for revenue generating items, like essential equipment and staff, not less essential or nonrevenue producing items.

 

For a clear explanation of the practical and legal information you need to run your business, see Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo).