Small businesses across the U.S. have found that their financial conditions have steadily declined since 2019, increasing their outstanding debt. The disruptions in the economy had many firms applying for emergency funding to keep or rehire employees and cover other expenses. In the same period, the Federal Reserve Bank’s 2021 Small Business Report shows that firms seeking non-emergency funding decreased from 43% in 2019 to 37% in 2020. Those seeking financing said they needed it more for operating expenses than expansion.
Unfortunately, since March 2020, the number of firms whose loans have declined or partially declined increased. Only 70% of applicants got approval for at least some funding compared to 81% in the previous year.
Strategies To Build Fast Business Credit
The statistics above show that businesses need a good line of credit, giving them the cash flow to meet any challenges they may face. A good credit score has several advantages, including more credit and better lending terms.
TRUiC, the really useful information company, provides resources for startups and business owners, and they stress the importance of building creditworthiness quickly. If you are unsure how to build business credit, TRUiC makes the following suggestions:
Create an LLC
As you start your business, providing solid foundations will ensure you create a good credit score faster. Creating a legal business entity is the first important step. Besides giving your business more credibility, an LLC is more protective of the business assets if it faces a lawsuit.
EIN and Your Business Profile
Get an EIN or Employment Identification Number from the IRS. This number is like an identity number for your business used to open a business bank account and used by lenders to check your credit score with credit bureaus.
Importance of a Business Bank Account
A business bank account separates your personal finances from those of the business. When you apply for any loans or credit, lenders first look at your business bank account statements to determine your eligibility for a loan.
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Use Credit to Build Business Credit
One of the fastest ways to build credit is to use various credit facilities available to your business. These include Net-30 Vendor accounts, a business credit card, and in-store credit cards.
Net-30 vendors provide credit for 30 days after invoicing, giving you the chance to make sales before paying them back. These tradelines are invaluable for your business. Try not to max your business credit card (keep it at 50%); otherwise, it will take more time to build higher credit limits.
All lines of credit will depend on your business and monthly revenues, but they will increase if you make regular payments on time or earlier.
They all report to the big credit bureaus, including Dun & Bradstreet, Equifax Small Business, Creditsafe, and SBFE. The faster you build credit, the sooner you can apply and qualify for a business loan to expand your business operations.
Make Your Business Visible and Reachable
A website and social media may seem insignificant, but they aren’t. Creditors want to know what your business is about and your customer profile. Create a professional-looking website where your lenders can see what you are about and show them your transparency by being on at least one updated social media platform. Have a business phone number and list it online; it will improve your credit score.
Business Insurance Reassures Creditors
Purchase business insurance to protect it against damage and losses. Ensuring your business risk reassures creditors that your business is a more negligible risk for them. A good insurance broker will advise you on the best type of policy and cover but make sure to include general liability, property damage, worker’s compensation, and loss of income.
As you build business credit, don’t forget to apply for a DUNS number since Dun & Bradstreet is the most significant credit bureau and one of the first places checked by creditors. Finally, don’t forget to check your credit score by extracting a credit report from at least three of the critical credit bureaus every six months. These are Dun & Bradstreet, Equifax Small Business, and Experian Business. Knowing your credit score is vital information because it allows you to plan your business strategy.
The faster your enterprise can build business credit, the better!