As a small business owner or operator, you work with a large number of mathematical equations. Think of the classic equation of assets equal liabilities plus owner equity. There is another equation you should know that unfortunately, far too many small business owners do not know.
It’s called no credit equals bad credit.
That’s right. The three primary credit reporting bureaus (Equifax, Experian, and TransUnion) treat businesses that have not established credit the same as businesses that have fallen into a financial hole by taking out an excessive amount of debt.
According to the Small Business Administration (SBA), delayed or lack of financing is the second most common reason for businesses to fail. Since anyone can review your business credit score, it is essential that you take steps to turn no credit or bad credit into a credit score that saves your business money, as well as increases sales.
How to improve the Credit Worthiness of Your Business
You have heard the classic saying of “Take it one step at a time.” You can even refer to the timeless reference to “Baby steps” for getting your business back on solid credit ground. Baby steps for businesses that have no credit or bad credit means getting your business listed online. No creditor is going to take your business seriously if you are not listed in the Google My Business Directory. All you have to do is take a little time to upload accurate and consistent information that pertains to your business.
Here are a few other tips to erase the no credit or bad credit blemish on your business record:
Acquire an Employer Identification Number
As with an online business listing, acquiring an Employer Identification Number (EIN) represents one of the first things you should do to establish good credit. You need an EIN to open a simple business checking account, as well as to open a line of credit offered by any lender. Once again, we are talking about baby steps to eliminate bad credit and to turn no credit into good credit.
Apply for a Business Credit Card
Obtaining credit by using a business credit card solves both the no credit and bad credit dilemma. Simply gaining credit erases the no credit cloud hanging over your small business. Fixing the bad credit issue is easy because by taking on more credit, your business increases its debt utilization ratio. In other words, you increase the amount of credit you have available, which should improve your business credit score. The key is to use the extra credit sparingly, such as when you need instant cash to fix the damage caused by a powerful storm.
Timely Payments All the Time
Perhaps the most important rule to turn no credit or bad credit around is to follow the most basic financial tip. Make your monthly debt payments on time, all the time. Just one late payment of a credit account can send your business credit score plummeting. A lower credit score increases the cost of financing everything from weekly supply purchases to taking out a second mortgage on the property where you run your business. It also negatively impacts your business credit profile.
Establish a Good Credit Relationship with Vendors
Maintaining a solid credit reputation with suppliers is one of the most fundamental principles of running a successful small business. A good credit relationship with purveyors makes it more likely that one or more vendors allow you to avoid up front payments for products. This is an especially important benefit for businesses such as restaurants and grocery stores. You also can enjoy better credit terms that include paying off an account every 90 days, instead of wiping the financial slate clean with a creditor every 30 days.
Work with a Bad Credit Merchant
If your business is saddled with a bad credit reputation, a bad credit merchant like Double Helix Processing can help your business return to the good graces of creditors. A company such as Double Helix Processing has established close working relationships with a wide variety of lenders to offer bad credit businesses the liquidity they need to expand operations or finance a major project.
How to Maintain Good Credit
Your business has finally scaled the credit mountain by either establishing a credit line or by taking steps to turn bad credit into good credit. Now, comes the harder part of the financial equation. You have to find ways to maintain a good credit score for your business. The first words of advice is to pay off bills early. One of the goals of obtaining credit or erasing bad credit was to pay off bills in a timely manner. The goal to maintain good credit is to pay off every bill before a bill comes due. You also want to monitor your credit score on a regular basis. To err is human should be the mantra for the three primary credit reporting agencies. Makes sure everything on your business credit report is current and accurate.
Bad credit or no credit is not the end of the world for small businesses. You just have to be proactive to turn a bad financial situation into one that helps your small business grow.