Your Business Credit Profile

You can start building your business credit even before opening your doors for business. Your first step, if possible, is to establish your business as a separate entity in order to separate your business credit profile from your personal credit profile. This means you want your business to be structured as a corporation (a Limited Liability Company, or LLC, is most common for small businesses).

Your second step is to make sure you have a well-written business plan, which includes all of the sections typically found in such a plan along with the necessary financial details. Be prepared to defend everything in your business plan by showing how you came up with your figures and developed your plans. In addition, before progressing any further, you need to make sure that you have all necessary licenses and/or permits to start and run such a business. Your initial goal is to establish a viable business on paper, with all of the details already in place.

Next, you want to find out exactly what the requirements are for lenders and for credit bureaus. By doing such a credit assessment, you will know what standards are expected before you start to establish and build a credit profile. It’s always advantageous to know what is required of you before embarking on any such project.

Finally, you will start making initial purchases for your business. This is where you will need to invest in your business or have individuals you know who will invest. Then use that money to make purchases from vendors who will:

1. Let you establish credit based on your personal credit background
2. Report your transactions to the credit bureaus

This is where your business plan can be very helpful, especially if it has attracted angel investors or other investors with significant business credentials. Like many aspects of business, you can start a snowball effect. Typically, having financial backing from one key individual or firm can help you attract other such individuals or firms as backers. In this case, the backing of such key players can motivate vendors to believe strongly in your business and grant you a line of credit. Of course, if vendors do grant you such credit, you must make prompt payments and make sure they are reported to the credit bureaus.

Another means of getting your credit started is through loans from state or national business associations, such as the Small Business Administration (SBA). Paying back such loans on time can also help you establish your business credit profile.

To build or improve your credit profile, other methods are fairly simple, and for small businesses, they are not unlike the guidelines for improving your personal credit rating. You want to:

* Pay within the set terms of suppliers.
* Make sure to work with suppliers who are reporting your prompt payments.
* Try to limit the number of inquiries regarding your credit profile.
* Do not overdo it with business credit cards -– have a couple, not a dozen.
* Do not let licenses or registrations lapse -– make sure you are on top of renewals or obtain any new licensing that you are expected to have for your business operations.
* Maintain thorough, up-to-date financial records.

Be watchful of where your business stands in conjunction to your industry. You want to know if you are spending much more — or less — than your competitors. Lenders will certainly be aware of numbers that appear unusual.

Once you have a business credit rating, it is also to your advantage to review your credit profiles from credit bureaus such as Dun & Bradstreet or Experian at least once or twice a year. Make sure they have the most accurate information and that no errors appear on the reports. If you do find errors, you need to contact the appropriate bureau and report the errors immediately. Always have paperwork ready to support your argument.