It may take some time for a small business to establish a credit rating and even more time to improve it. But make no mistake, your credit rating is an essential element when looking for credit or a loan. It also helps you get approved by owners, suppliers and sellers.
Commercial credit scores are available from various sources, such as FICO, Dunn & Bradstreet, Equifax and Experian. Although each provider uses its own methodology, the following steps should improve any corporate credit score.
Check your credit reports
Each commercial credit bureau maintains credit reports. You want to check those reports to make sure there are no mistakes that can damage your score. You don’t have the automatic right to look at your credit reports – usually, some money has to get through. The three major suppliers are Dunn & Bradstreet, Equifax and Experian, and they all charge commissions. You can also access your credit report through Nav.com. Check your reports for any errors and contest them.
Establish your credit
What if you find yourself empty when looking for the corporate credit report? It means that you have not yet established your credit. Maybe you paid your business bills with your personal credit card, a definite no-no. Of course, these payments will be reflected on your personal credit, not on the business relationship.
Some steps need to be taken to establish corporate credit:
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- Form an LLC, a partnership or a company for your business.
- Receive a federal employer identification number from the IRS.
- Create a separate bank account from your personal bank account. Make sure the account is titled in your company name.
- Get a new phone line just for your business, listed under your business name.
- Get a D-U-N-S number by registering with Dun & Bradstreet. It helps you secure federal grants and contracts.
The commercial credit report will record credit related transactions. It could also include some public records and other information.
Get a corporate credit card
This will help you build your credit profile quickly. Use it for business purchases such as travel, entertainment, office supplies and so on. Choose a card that offers good rewards, such as high refund rates or miles. Add employees to the card to collect rewards on corporate purchases.
Use vendors who report payments
Many sellers report payments received to large corporate credit agencies. This applies when paying on terms, e.g. 2/10 net 30, etc. You may already be using vendors who extend the terms but make sure they report transactions based on those terms. If not, find alternative vendors that report payments and change.
Pay sellers upfront
Some corporate credit bureaus, such as Dun & Bradstreet, score higher when paying vendor bills before they are due. For example, the D&B PAYDEX score exceeds 100 and you can get a score of 80 by paying your suppliers on time. However, to maximize it to 100, you need to pay suppliers upfront.
Manage your cash flow with credit
Your credit score can help you better manage your supplier relationships. A good score could entitle you to better conditions and lower rates from suppliers. This is a critical aspect of optimizing operations and funding. Take advantage of the credit limits on your corporate credit cards to manage your purchase. These are often cheaper than alternatives, such as the merchant’s cash advances. The more interest you save, the less drag your profits.
There will be times when it makes perfect sense to borrow money for your business. For example, you may be presented with a tempting opportunity that requires more money than is currently available. Alternatively, commercial loans can be used to facilitate volatile or seasonal sales. You can use loans to grow your business and expand its reach.