There are 31.7 million small businesses in the United States, according to the Small Business Administration (2020). That’s up 1 million from the year before. Additionally, the number of business startups in the U.S. grew from 3.5 million to 4.4 million in 2020 – a 24% increase. Surprisingly, this growth in startups and small businesses comes despite the extraordinary and devastating events of 2020. In this article, you will learn about some tips to build business credit for the future.
Now, with restrictions easing, the nation is moving forward and regaining some sort of normality. And for some small businesses, this presents an opportunity to switch from ‘survive’ to ‘thrive’ mode – and that means growth is back on the agenda.
But if you’re planning to apply for small business funding as part of your growth strategy, there are a number of steps you should consider first.
Whether you are considering an SBA loan or a business line of credit (there are many different types of loan, so make sure you fully research the options first), remember that every application will depend on the judgment of: “Is your business a safe investment?”
So, this decision-making process will largely focus on your company’s credit score and risk profile, so it pays to get this in order as soon as possible.
With that in mind, here are some tips to build business credit for future growth;
#1. Focus on building a positive business credit score
When reviewing your business payment history, one thing lenders will look for is whether or not you pay vendors and contractors on time.
The key is to always pay bills on time, or ahead of time, and if you foresee difficulties with a payment, contact the supplier as soon as possible to work out a payment plan. It’s one of the best tips to build business credit for future growth.
#2. Separate your personal and business credit history
This is an important step, as it means you will minimize any negative effects that one might have on the other.
Set up a separate bank account for your business and channel business-related payments through your commercial bank account, keeping any personal purchases separate.
#3. Create an LLC
To separate your business and personal payments, and also to help separate your personal and business assets, credit building companies often suggest forming an LLC, S-corporation, or C-corporation.
That way, your personal credit profile (along with your personal assets) will be better protected should your business run into any financial difficulties in the future. We advise gaining advice from a lawyer or a tax professional when making these decisions.
#4. Choose suppliers that report to business credit bureaus
One of the best tips to build your business credit for future growth is to work with some suppliers that report your payments to business credit agencies.
#5. Create a professional profile for your business
Lending decisions aren’t solely based on your payment history — they also take into account how your business is perceived from the outside.
For instance, do you have a commercially recognized address and phone number? Do you have a website? Is your number listed in the 411 directory?
Your business should look and act like a professional, trustworthy institution. It’s all about credibility. And the more visible and active your business is, the more likely you are to gain your creditors’ trust and approval.
Always remember that a strong business credit score not only makes your business a good candidate to lend money to, but it also offers additional business benefits, such as:
- Lower interest rates
- Lower insurance premiums
- Better terms
If you’re looking to build credibility for your small business, but you’re operating out of a home address, we have a tip for that, too.
Operating Your Business Out of a Home Address
Our partner, Alliance Virtual Offices, can provide a recognized office address for your business from as little as $49 per month.
You’ll get a business address at an office center with a recognized street address, complete with onsite office space and meeting rooms.
But the difference is, you don’t pay for the physical office space. You pay for the address, which you can use for important functions like setting up an LLC and opening a business bank account.
It also doubles up as a place to receive mail. What’s more, if you do need physical office space or a meeting room, you can rent space at the center for a simple hourly fee. That’s why it’s so cost-effective.
This address-only solution is one of the best tips to build business credit for future growth, while at the same time conserving capital ready to invest into your business.
Visit the Alliance Virtual Offices website to learn more. Chat to a member of the team online and search for virtual office locations in your area.
Don’t forget to check Tycoono regularly for more useful business growth tips and advice.
One last thing. When it comes to business finance and structure, we advise that you consult a qualified professional to help you with these decisions.