Building Small Business Credit

Many small businesses have trouble attaining lines of credit or loans because they don’t have established credit scores. Now what comes first the chicken or the egg… You need successful transactional histories to increase credit scores, but many suppliers shy away from doing business on credit if your credit scores are too low or nonexistent.

Here are 3 quick and easy ways to start to establish small business credit from an interesting new site I’ve recently come across called YFS Magazine.

1. Remit Early Payments
Many manufacturers and suppliers offer discounts for paying in cash or for paying early.
Taking advantage of deals, such as “2% 10 or net 30”, can help a firm in multiple ways. Suppliers are more inclined to give this type of deal than a cash discount, and these deals are a great way for you to save money and build credit if your cash flow can sustain early payments.

2. Pay off Liabilities Before Maturity
Many reporting agencies boost the credit scores of businesses who pay off their liabilities before they mature. This is a quick and easy way for businesses to boost their credit without creating new lines of credit or increasing their total liabilities.

3. Convert COD to Business on Credit
Another great way to establish small business credit is to convert current cash on delivery transactions to business on credit.
This has a few benefits, one of which is that it frees up cash. The business remains more liquid so it can take advantage should an investment opportunity arise. However, it is important to remember that not paying suppliers and vendors on time will hurt your business relationship and creditworthiness; on-time payments must be prioritized.
Some suppliers may be hesitant to convert CODs to business on account since it means they won’t have cash as quickly. You can alleviate some of their hesitation by first running a business credit report. This credit report calculates your business’s probability of default over the next year. If you present it during negotiations, it’s a great way to show suppliers and creditors that you are in stable financial health and that you can meet your financial obligations.

Business credit is an asset that a business can secure lines of credit with, lease equipment, finance a company vehicle, and obtain business loans and credit cards without putting personal credit at risk.

It’s important to remember, the greater the business credit, the greater the worth and potential return you will receive if you choose to sell the business in the future.