For many small business owners, business credit is not a priority and often ranks lower to other aspects of the business perceived to be of more value. What these entrepreneurs don’t realise is that business credit is just as (if not more) important as other aspects of the business such as growing sales and ramping up production.
Business credit is quite similar to personal credit in that your business is assigned a credit score based on its financial history which shows its creditworthiness. Good business credit will help your business access cheap and bigger loans, better trade terms, and even make it easier for you to rent premises for the business. A bad business credit, on the other hand, portrays your business as “risky” financially which could make it difficult for you to access financing or buy goods on credit.
For entrepreneurs who would like to grow their businesses, understanding and purposefully working to improve business credit is not an option, it’s a necessity. Here are 5 tips to help you improve your business credit rating for easier access to credit and financing:
- Check your current business credit score.Obviously, you cannot fix a problem without knowing its severity. So, naturally, the first step for improving your business credit is checking your current credit score. This can be done easily through the websites of your local credit reference bureaus.
If you find that your company does not have a credit profile yet, create one and ensure that you add adequate and accurate information about your business in it. If you find that your profile is incomplete or inaccurate, make the corrections so that all the information regarding your business is accurate.
- Pay your debts on time or earlier. Your debt payment history is one of the major factors affecting your business credit rating. Always ensure that your bills are paid when they are due – preferably earlier. The earlier you pay your debt, the more your credit score stands to benefit.
- Make sure your creditors report your transactions. Paying your bills early will not do you any good if your creditors are not reporting this information to the credit reference bureaus. Follow up to ensure that any business you transact with reports the details in order to build a financial history for your business.
- Take care of your personal finances. Although your business needs to be incorporated (essentially making it an independent entity) in order to build business credit, sometimes your personal finances will be factored in when determining the credit score for your business. So make sure your personal credit is in order to improve your business credit.
If your personal credit is pretty bad, consider taking on a partner with a good credit score and a good history of running a business as this can help improve your business credit.
- Keep using credit but carefully. You need to use credit in order to improve your business credit score. But even so, always ensure that your credit utilisation ratio is below 30% as any higher would have a negative effect on your score.Also, strive to keep raising your credit limit with suppliers who you have good relationships with so that it can raise your overall credit limit.
Remember, business credit ratings are always fluctuating as credit reference bureaus receive new information about your business. So keep checking your profile and always ensure that any errors are corrected as soon as possible to avoid degrading your business credit score.