Avoid using personal credit, build your own business credit that helps to make your business profile strong in every way. When you establish your business, you need to focus on credit status and do permanent work to improve it without affecting the business. To improve credit score, the financing department is necessary to maintain all logic and techniques. It depends on you and your business growth how you can run your business with a good credit score.
A single attack on your business can destroy or disbalance your credit status in the eyes of financial institutions as well as other business competitors and customers. This can have a bad impact on your business health and might stop your business growth. With planned techniques and business tasks, you can protect your business from disbalance or any disasters. Business contingency plans can save your credit status.
What is credit in business?
Credit in business defines your financial health at every moment whether a business is on track or off track. It is calculated as to how the company operates with its creditors and pays its debts on time or not. It is a single term that describes the relationship between entrepreneurs and creditors. It is a part of finance that is maintained by the financial investors and financial analysts who tell management what they should do or not.
Business Credit shows in two ways:
- Good credit score: Good business credit score shows the business is on a good track, the company plays good business activities, and doesn’t fail to pay its debts on time. That also offers a chance to connect with more creditors. In simple words, it describes more business stability.
- Bad credit score: Bad business credit score shows the business is on a bad track, the company plays bad business activities and fails to pay its debts on time. That declines the financial creditworthiness of the company. In simple words, it describes low business stability.
How to maintain your business credit history?
Maintaining a credit history is a tough task in business, even should be the first priority for a business owner to run a business in a better environment. Balancing a credit history in any kind of situation is in the business owner’s hands if they want to take on more debts in future. Taking debt is a compulsion to enhance productivity in business. More investment gives you more profit or revenue. No one has more separate or secured money in real-time, they have to request money from creditors on interest and installments from a bank or financial institution. When you connect with any kind of creditor whether it is a bank or lender as a loan debtor, you have to separate your loan money from your personal funds to keep easily investing in a business and avoid the loan amount on spending your personal expenses, it should be for business investment purposes. Once you take out money from creditors, you have to make yourself alert from any kind of fraud and maintain your financial status so that you can elect to pay installments as well as interest. But before being eligible to take out money, you have to perform multiple formalities if you take from any commercial creditors and the great thing is you can check your credit history and other loan details anytime on the bank website by giving loan account number and other required details. Also, you will only be eligible to request money when the creditor finds out that you are fit financially or not.
5 Easy steps to build credit for your business
Starting your business with the expectation to increase your credit score helps you to improve your business credit and get a business loan from creditors or vendors.
Go to business structure
The First step is the business structure which needs to decide to give a kind to business and run on its rules. To make your business legal in the business industry or in the eyes of the government, you have to choose an entity by selecting a business structure from such as LLC, LLP, or corporation. It is not hard to choose, if you can’t understand the difference between these three, you can take help from business consultants to proceed. After you get your entity, come to your business name which defines your business existence. Choose a business name that describes your business with the help of business name generators.
Acquire an EIN
Then, move to acquire an EIN or federal tax ID offline or through an IRS tool. EIN contains a 9 digit number that comes to perform multiple legal business activities such as filing taxes, building connections with banks to request a loan, acquiring a license, and insurance.
Don’t use a personal account in business, open a business account
Never use a personal bank account for business transactions, if you do that, this creates more complexity for you and your business which is not good for business credit. To maintain a business credit, you have to prepare accounts by making proper statements and open a business bank account for business transactions whether it is related to loan transactions, good payments transactions, or others. Build a gap between personal transactions and business transactions to avoid mix up. If you build a business bank account separately, you can balance your business credit history to show creditors to apply for a loan.
Records proper credit accounts
When you take out loans from anyone whether it is a bank, lender, friends, or relatives, you have to maintain proper accounts to record or trace your business credit history such as how you are paying back to the creditors or how much has been left to pay. This clears your doubts whenever you sit to check your credit history, you find clarity and better visibility.
When you are going to take a loan from creditors, if your previous credit history is good and recorded properly then you can easily get a high amount of loan. This increases the bank’s trust and confidence in you and your business. Everyone takes a business loan to enlarge their business on a good track where they can build more relations with other entrepreneurs who can become supporters for you.
Hire an accountants
You can hire an accountant to maintain your credit accounts and update you on every change. In making accounts, you will have a responsibility to collect data and share them to prepare accounts on the spot so that no misstatements or errors are found in the future. A Single error can destroy your whole business credit accounting books, hire a qualified accountant that can record your paid interest and repayment loan amount as well as have to pay interest and repayment loans in your accounting books. This helps you to clear your doubts regarding your loans and helps you to clarify your credit history in the future.
For whom business credit is improved?
Business credit is improved or maintained for creditors, vendors, as well as competitors so that you can show them how efficiently you are managing your business activities and how smoothly you can manage your finances such as debts and liabilities from your net income.
For example, when you purchase goods or services on credit from vendors or suppliers, the vendors make a purchase slip that shows the amount is left to pay. One of the copies of the purchase slip is given to the buyer and another one is held by vendors for evidence. That copy works as a reminder for a buyer that they have to pay at a given time. The purchase entry is passed on the balance sheet and income statement for making payments in the future.