It can be difficult to get credit when opening a new business, not least because banks tend to tie-up your business and personal finances and so a black mark on one can invariably lead to a blemish on the other.
So, if you’re applying for any business credit, it’s vitally important to make sure that your personal credit rating is not suffering from any adverse scoring.
Here are a few factors that can have an effect on your credit rating, some being more obvious than others:
- Making late payments on credit card bills, finance arrangements, utility bills or mortgage payments
- Being close to the limit on your credit cards or overdrafts
- Having a short credit or no previous credit history
- Applying for a number of credit lines in a short space of time
- Not having a variety of credit lines, for example, installment loans (fixed payments such as car finance) and revolving loans (unsecured borrowing such as credit cards)
- Declaring bankruptcy
But, all being well, what steps can you take to build your business credit rating?
1. Start early
This doesn’t mean getting off as many credit card applications as you can, as this can have the opposite effect. It can be something as simple as making sure that you have a proper business structure – for example, make sure your business premises has a landline and is registered with directory enquiries and ensure that you have the correct occupational licences in place.
Just these simple steps can offer credit agencies the piece of mind that your business is legitimate.
2. Get references
It’s quite feasible that you could be running a successful business, with several employees on the payroll, cash in the bank and a history of paying your creditors on time yet still get refused for credit.
This is because a lack of information on your credit profile can be just as damaging as a poor credit history. It’s vital to start early, and trade references are a good way to quickly build a credit profile.
To help this process, try to do business with companies that will report your transactions to the major credit referencing agencies.
3. Don’t get personal
An old adage says “don’t mix business with pleasure” and this is certainly true for your finances.
Although the banks and lenders will, more often than not, check both profiles before offering credit, it’s vitally important that you keep both separate and under no circumstances get business credit to supplement personal credit problems.
If you’re having personal credit problems, then try to resolve them alongside building up a business credit portfolio.
One way to ensure this is to set up your business as a separate entity, for example a limited company, but this is not always the best option for many SMEs and is something that must be carefully considered.
This post first appeared on Heather Townsend’s excellent blog, The Efficiency Coach.
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