Business credit is a track record of your business’s financial responsibility that is used to determine its credit worthiness, etc. Business credit is carefully scrutinized by investors, companies and financial institutions in helping to determine if a business is a good candidate to lend money to or, to do business deals with.

Establishing good business credit is just as important as is building good personal credit. It gives your company the ability to obtain loans with more favourable interest rates and payment terms from lenders. With excellent or good business credit, suppliers will feel more comfortable giving you longer time periods to pay for inventory. You will also be able to negotiate better repayment terms from new vendors and suppliers.

Since your business credit and personal credit are separate and independent of each other, if one is compromised then it shouldn’t affect the other. It’s totally possible to have poor personal credit but great business credit, which allows you to minimize the likelihood of your personal credit negatively affecting your business and vice versa.

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Here are a few ways to establish good business credit.

  • Incorporate your business – To establish business credit you need to be an incorporated company. This is very important as it creates the separation between your personal credit and your business credit, as the incorporated business is considered a is no separation between personal and business credit.
  • Open a company business bank account – Run all or as much of your business transactions through that account and keep the account in good standing.
  • Get a business credit card – Not linked to any of the owners personally, maintaining the clear separation between the owners and their businesses.
  • Use your business credit card often – Make timely payments, avoid maxing out your business credit card and keep credit utilization low.
  • Business credit card reporting – Ensure the business credit card you choose reports to the various business credit bureaus such as Equifax, TransUnion and Experian.
  • Business line of credit – Apply for a business line of credit and if approved, use and manage responsibly making your interest payments on time. Some vendors, or suppliers sometimes offer credit lines, which could also help your company build business credit assuming they report your payment history to the credit agencies.
  • Business expenses and bills – Pay on time and try to avoid any collection issues.
  • Business credit report – Monitor your business credit report to check for and investigate any potential fraud issues, errors etc.
  • Make use of vendor credit – Vendor credit is when you purchase goods and services from vendors that allow you to pay later, so in essence you’re trying to get net-30 accounts with companies that report to commercial credit agencies. A net-30 account is one that allows you 30 days to pay your bill in full after you have purchased goods or services from them.

financial tip tuesdayThe vendor then report your payments to commercial credit agencies which help your business establish business credit. A few Net-30 vendors to consider when trying to build business credit are Grainger, Uline, Quill, Strategic Network Solutions, Staples etc.

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