Tips to build strong financial credit for your business

March 5th, 2013 Jesse Gleason

There are many financial issues that are important to your success as a small business owner/entrepreneur. One of them is building a strong credit rating for your business and maintaining it. Here’s the interesting element: business credit scores work differently than personal credit scores. They are not like – and are not used the same – as personal FICO scores.

While business credit bureaus such as Dunn & Bradstreet may have your business credit scores on record, most banks and financial institutions don’t check them. Instead, they tend to analyze the financial aspects of your business, such as cash flow, money in your bank account, your bill paying history, profit and loss, assets and liabilities and current loans/credit accounts. So while your official credit score may not be checked, your overall credit rating is still important. Here are some helpful tips on keeping your credit looking good and working well for you.

Apply for a company credit card.

Having a company credit card, using it on a regular basis and paying the full bill monthly helps show you are a credit-worthy business. A solid payment history on your company credit card can make it much easier to get a line-of-credit, especially from the bank or financial institution who issued the credit card.

Pay your suppliers/vendors on time.

It’s very helpful – and smart – to pay your invoices in a timely manner, as this gives your company a stronger credit rating. It’s also advantageous to pay early – if possible – because many vendors will give you a discount for an early payment. However, it’s also important not to overextend your payments and dip too deeply into your line of credit. Always keep a close eye on invoices, and pay them in a timely manner while keeping cash flow positive.

Manage cash flow.

The level of cash flowing through your business is another strong indicator of how successful and credit worthy your business is. Whenever possible, keep your cash flow positive (more coming in than going out), so that any financial institution considering lending you money will see that you have stable cash flow that doesn’t bounce all over and be inconsistent.

Build a good relationship with a bank.

When you have a strong relationship with a bank, they can be a great partner for helping you obtain additional credit. In fact, many banks will write valuable credit reference letters that can help you get trade credit, business credit cards or other major purchase lines of credit.

Protect your personal credit scores.

Occasionally, especially with small businesses, banks and other financial institutions may check and evaluate your personal credit score as a factor in your business credit rating. So by keeping your personal credit score solid and high, you have an even better chance to access additional credit lines, cards and loans for your business.

Add it all up, and you can see that keeping your company’s credit rating looking good is a very positive financial strategy for your business. Think of it this way: better credit, better financial opportunities.

About the author

Jesse Gleason is a Vice President, Regional Credit Officer at MidWestOne Bank.

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