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Are You Building a Strong Business Credit Profile?
There’s much more to building a strong business credit profile then simply paying your invoices on time. While this is an obvious way to establish corporate credit and a positive payment history there are many other factors that can dramatically impact the strength of your business credit file.
If I were to ask you what a strong personal credit profile would look like you would probably say that it’s having a few credit cards with no more than 30% debt to credit limit ratios, a mortgage loan, and an auto loan with excellent payment histories. In other words a healthy blend of credit which shows you can personally handle various forms of financing responsibly.
Now it’s important for you to understand that when it comes to your business credit a similar approach is needed in order to show that your company can handle various forms of business financing responsibly. A strong business credit file is vital to your business and it affects your ability to obtain capital.
Here is couple of other things that it can have an influence on:
- The amount of your loan approvals and what interest rates you'll pay
- Your business insurance premiums
- Whether suppliers will extend credit terms
- Whether a personal guarantee is required when applying for business financing
- Making it easier for a potential business partner to determine the risk of doing business with you
Here are the key account types you need in order to show the best blend of credit in a strong business credit file:
- Suppliers
- Credit Cards
- Line of Credit
- Loans
- Leasing
- Insurance
Suppliers
Your payment experience with suppliers also known as vendors show your business’s ability to handle short term financing from Net 15, Net 30, Net 60, Net 90, or even Net 120 payment terms. However, with the balances being paid in full on or prior to the due date it doesn’t show your ability to handle revolving debt.
Credit Cards
Your payment experience with revolving accounts like business credit cards shows how your business handles revolving debt. This account type along with supplier accounts can further display the diversity of credit responsibility your business can handle. Even if you don’t carry credit card debt and choose to pay off the balance each month, these account types will still benefit your profile due to the type of account it is.
Line of Credit
Having small business credit lines reporting can dramatically increase the strength of your profile. This can also play a huge role in qualifying for additional lines of credit with other banks. Once a bank pulls your report and sees that you have already gone through the scrutiny required for a business line of credit with another lender the greater the chances you have for approval.
Loans
This account type has a similar benefit to a line of credit meaning that it shows your business’s ability to face strict documentation requirements set by lenders. Not to mention it also shows your ability to handle a set repayment schedule determined by the lender.
Leasing
A lease can enhance your profile and status to the lending community by improving your debt-to-equity ratio and earnings-to-fixed assets ratios.
Insurance
Insurance premiums reporting on your profile will show that your business is responsible when it comes to carrying the necessary insurance protection and making timely premium payments. This can range from liability, property, accident and health, crime, auto, workers compensation and employer liability.
Building business credit requires this special blend of account types which can properly showcase your business’s ability to properly handle its financial obligations, face scrutiny, and show responsibility while maintaining a reasonable debt to income ratio. A strong profile is the foundation for your company’s longevity and success. Go for it!
Marco Carbajo is founder of Start Business Credit.com
You may contact Marco directly at: ceo@startbusinesscredit.com
Follow Marco on Twitter @MarcoCarbajo and read more of his insights on BusinessCreditBlogger.com
