The COVID-19 pandemic affected many people and businesses -- about 81% of firms experienced decreased sales due to the crisis. As a result, their financial condition deteriorated, forcing up to 62% of firms to use their personal funds to address business challenges.
In such situations, access to business funding can be difficult, particularly if you have a poor credit score. So, whether you’re looking to start a business, expand your existing operations, or cushion your business, it’s advisable to take the time to review and fix both your business and personal credit scores.
The first step to building a healthy credit history is monitoring and reviewing your credit reports and score. Bear in mind that your credit history affects your relationships with investors and partners. More importantly, it determines the interest rates you get on financing and your insurance premiums.
You can get your business credit reports from Dun & Bradstreet, Equifax Business, and Experian Business. You’ll need to pay a certain fee to get a detailed report for any given period. Reviewing these reports allows you to identify and fix errors that might affect your loan eligibility and interest rates down the road.
Credit agencies need adequate information on your business to gauge your loan eligibility and establish your legitimacy. You can ensure they have this information by completing your business registration paperwork. This include:
- Setting up your D-U-N-S number on the Dun & Bradstreet website for free
- Applying for a federal employer identification number (EIN) through the IRS
- Forming a Limited Liability Company instead of a Sole Proprietorship to let you keep your personal and business financials separately
Additionally, you need to open your business bank account in your business name and have a listed business phone line. All these details provide essential paperwork for improving chances for business funding.
Making early repayments to your creditors allows you to get a perfect business credit score. Whatever entity you owe money to, be sure to keep up with repayments -- this includes payments to service providers, suppliers, and other creditors.
A consistent history of repayments shows you’re reliable, improving your creditworthiness. On the other hand, a history of late or skipped payments negatively impacts your credit score and profile. Bear in mind that all three credit agencies put great emphasis on payment history when reviewing your score.
Another way you can establish your business credit is by getting a business or corporate credit card that reports to all the major credit reporting agencies. However, you must always pay off the card in full each month. Be sure to capitalize on 0% intro APR periods to make full repayments.
In this case, you’ll need to improve your personal credit score to get a better credit card. Credit card issuers tend to use personal scores to establish your creditworthiness. If your score doesn’t allow you to get the card, your next best option is applying for a secured credit card.
Buying business materials and supplies from third-party vendors also helps to improve your business credit. If you have built accounts-payable relationships with suppliers, you can encourage them to report your accounts to credit reporting agencies. This will boost your credit profile if you make timely payments.
Building trade lines is particularly important if you want to get a Dun & Bradstreet Paydex score, which requires you to have at least three trade lines. The agency uses the lines to measure your payment history. Even if the suppliers don’t report your payments, you can still add them to your account as trade references for a follow-up.
When searching for business loans, it’s advisable to approach lenders that submit payment reports to credit bureaus. Not all lenders make these submissions, so if you’re looking to improve your credit, you must ask the lender whether they report accounts to credit agencies.
Generally, traditional creditors, such as banks, report to credit bureaus. However, they tend to have strict eligibility requirements. Online small-business lenders have become the go-to creditors for most business owners because they are more likely to give loans to bad credit borrowers. Regardless of the case, be sure the lender reports their client accounts.
Building your business credit score is not just a matter of qualifying for that one-time loan approval. A great business credit profile helps you in the long term, and it can come quite in handy during turbulent times when you’re in dire need of funding. Generally, the higher your credit score, the better.
As such, make sure you’re always paying your creditors and suppliers on time. Remember to encourage your vendors and creditors to report your accounts to all credit agencies. More importantly, review your credit reports regularly to check your progress and add more credit references if needed.
Equitable is one of America’s leading financial services companies. Founded originally in 1859, the company’s mission is to help clients secure their financial well-being with advice, protection and retirement strategies for individuals, families and small businesses. We understand financial planning is about more than money. It’s about your personal needs, responsibilities and goals. Those are the key factors informing your path toward economic stability. That’s why we offer a humanistic and holistic approach to financial services that take into account the whole you.