Boosting Your Credit As A Small Business Owner
An individual’s credit score can impact nearly every part of their financial life, from accessing small business working capital to securing a home. However, credit can be even more important for a business itself. Fortunately, there are strategies owners can use to boost their business credit scores and make operations that much easier.
Importance of a business credit score
First, most small business owners will likely want to keep business and personal finances separate. While your business will be intrinsically linked to your income, you don’t want things like business debt obligations to affect your personal credit or that of your partner. If the worst should occur and your business fails, you may find yourself having to declare personal bankruptcy if your finances aren’t separated.
Additionally, obtaining larger business loans will be far easier if your enterprise has a credit profile of its own. A high personal credit score will help you access smaller loans, but oftentimes a business will require larger options.
Also, just like with personal credit scores, the healthier your business credit profile is, the easier it will be to obtain funds with favorable rates and terms, as well as more affordable insurance coverage.
Improving your business credit score
The first step for small business owners looking to boost their scores should be analyzing their business credit report to ensure there are no inaccuracies.
“There’s only one way to improve your score quickly, and that’s if there’s untrue negative information,” Liz Weston, author of “Your Credit Score, Your Money & What’s at Stake,” told Entreprenuer. “If you have somebody else’s account showing up on your credit report and you get that taken off, for instance, you’re likely to see a quick improvement in your scores. Other than that, it’s really a game of small improvements over time.”
As far as what small improvements will enhance a business credit score, the most important is paying creditors on time. Making timely payments in full will show credit rating agencies, and potential lenders, that a business is trustworthy and financially stable.
It’s also helpful to understand how business credit scores are calculated. Factors such as outstanding balances, payment habits, how credit is utilized and years on file all play a role.
For instance, since credit utilization can impact scores, it’s smart strategy for a business owner to open new business lines of credit if they don’t have any or only have a minimal amount. Having multiple credit accounts that are paid off regularly can help improve scores.
Options for businesses with poor credit
Even owners with the best intentions may find their business sporting bad credit scores at some point. While this is definitely something business owners should try to avoid, it’s not the end of the world as far as accessing funding is concerned.
There are special bad credit small business loans available for businesses to utilize. These loans typically put less focus on FICO scores in favor of other financial attributes.