While everyone understands the value of maintaining a good personal credit score, for small business owners is just as important to make sure your business credit profile is the best it can be. Both scores impact a business owner’s ability to secure a small business loan; and a good business credit profile can help secure the best possible interest rates, the most favorable terms, and maybe even a larger loan or line of credit.
Here are four things you can start doing today to improve your business credit profile:
1. Make sure the business credit bureaus have the right information: In addition to your actual credit history, all three of the major reporting bureaus (Experian, Equifax, and Dunn & Bradstreet), pull data from the public record. Something as simple as a mistake regarding your SIC (Standard Industrial Classification) code can negatively impact your profile. With that in mind, whenever you review your credit history, you should also make sure the basic profile information is also correct. Although the process is sometimes time-consuming, all three credit bureaus are interested in making sure they have the most accurate information they can, so they will make changes to information you can verify as incorrect.
2. Make sure the vendors and suppliers you use report your good credit behavior to the bureaus: If you have a good credit history with a vendor that doesn’t report it to the appropriate credit bureau, that history won’t positively impact your credit profile. This is an important part of building a good business credit profile. Because it impacts your ability to secure future business credit, request any supplier that doesn’t report to do so. If they won’t, it’s important enough that you may want to consider a new supplier.
3. Keep your debt under control: While it’s not uncommon for a business to carry a bigger debt load than an individual, it’s not a good idea to use all of your available credit—it can throw up a red flag to potential lenders. Lenders want to work with business owners who can efficiently manage debt to increase profits and don’t want to see business owners with their credit maxed out and looking for more to stay afloat. Although it’s not the only measure a lender will use to evaluate whether or not they will approve a small business loan, typically keeping your debt below 40 percent of your income is a good debt to income ratio.
4. Make timely payments: While this might sound like an oversimplification, how promptly you pay your phone bill, your suppliers, along with any other debt you might have could positively or negatively impact your credit profile. In reality, there are no shortcuts to building a strong business credit profile.
For most small business owners, lenders will always want to see a strong personal credit score—along with a good business profile. These four simple tips, you can start working on today, will help you build a business profile that will help you secure the small business financing you need at the best rates and the best terms when you need it.