You might need to make some changes in operations if you don't have good small-business credit.

You might need to make some changes in operations if you don’t have good small-business credit.

Chances are, you built your startup from scratch with little else but your own hard work and saved-up dollars. But if all goes right – and we’re hoping it does – your business will grow and require more money to run it.

However, some small-business owners can’t keep pumping their own revenues and investments back into the business without risking a cash flow crisis. If this occurs, it may be time to pay a visit to the Ol’ Suits for a meeting on a loan you can use to fund your business’ growth.

Income.com knows entrepreneurs want to avoid outside influence when it comes to their small businesses, but sometimes, the situation requires that they look for outside avenues of funding. It also knows that some may be ill-prepared to apply for a loan because they don’t have the best business credit.

Unlike the ink you use to fill in a crossword, your credit history isn’t permanent. There are techniques you can use and strategies you can develop to improve your score. Managing credit is an important task to improve your future standing in the eyes of the bank, and to do this, entrepreneurs should stop mixing business expenses and personal credit – and vice versa – and start paying bills on time.

Like church and state, keep business and personal credit separate

One telltale statistic that should make the hair on any small-business owner’s neck stand up was cited by the Business Credit Blogger. Writing a piece for the U.S. Small Business Administration (SBA), Marco Cabarjo noted 65 percent of all small-business owners use credit for business-related purchases. However, just 50 percent of the purchases are charged to cards that are under the business name.

It’s a risky move when owners start using personal credit for business expenses or business credit for personal purchases. The more conflated the two become, the more likely it is owners will have their personal assets put at risk if the business accrues debt, is sued or fails.

The same warning can apply to personal charges to business credit. Want a surefire way to doom your personal and business credit at the same time? Keep putting menial personal expenses on business credit in order to build up rewards. Such a practice not only creates a swirling migraine headache when it comes to record-keeping, but can again put you and your business at risk financially.

Don’t be tardy

It goes without saying, but making timely bill payments is as important a task as any other obligation small-business owners need to take care of, especially in light of its influence on your credit.

Not being late on payments helps you build a good business credit, as well as keeping you on good terms with creditors and credit rating agencies. According to a blog by payroll service provider Intuit, payment history accounts for up to one-third – or more – of your overall credit score. Timely payments demonstrate a business is dependable, has a steady flow of receipts and is run by reliable and responsible individuals. On the other hand, late payments signal to those overseeing your credit history your startup may not be well managed and, therefore, not worth the risk of a loan.

Avoid late payments at all reasonable costs. If you’re coming up to the 11th hour on a critical payment, it might not be the worst idea to look to friends and family for some cash to tide you over.

Set mobile reminders on a smartphone to notify yourself when a payment due date is coming up. Marking it down on a calendar might not be the worst idea, but you’re liable to glance right past it. Compare that to having a ringing, vibrating reminder emit from a device that is constantly in your possession.

Regularly monitor credit

Although only a select few amorphous and imposing agencies act as gatekeepers to your credit, it is your credit history and you have every right to know what its status is. That’s why it’s critical you take advantage of every opportunity to inspect and possibly correct your credit history.

By law, you are entitled to receive a free copy of your credit report once a year from each of the three main agencies: Equifax, Experian and TransUnion. Regularly requesting a copy of your credit report is not only important to detecting and rectifying any discrepancies, but also monitoring your credit history to see if you are on the right path to building better small-business credit or on the downward trend.

Income.com knows building good credit can be a difficult task for small-business owners, but it’s essential to running a successful operation and ensuring you are prepared in the event you need outside financing. You have to draw a clear line in the sand when it comes to personal expenses and business credit. Never forget to pay bills on time and always keep abreast of your credit history, as you are legally entitled to.

 

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