If you are a new business just starting out, building a line of credit is in your best interest. There are many reasons why you need good credit. For starters, if you need to borrow money from the bank to grow your business, you will get better terms. When buying products or services from another business, you will be in a better position to negotiate so you don’t have to pay in advance.
What if you are a new start-up and don’t have credit yet? Or what if your credit isn’t good enough? Don’t worry, here are some practical steps to help you build your business from the ground up.
Register your Business
Registering your business shows that you are legitimate. This does not necessarily mean that you have to be incorporated; it means that you can register as a sole proprietorship, partnership, or a cooperative. The key is to have a bank account, and to start using it to pay your business bills.
Pay Bills on Time
Make sure you meet the deadline for your bills every time; this demonstrates that you are fiscally responsible. Also, a good credit history makes it easier to qualify for a line of credit. It also increases the chances for approval when you are borrowing money; after all, lenders are more willing to extend credit to businesses with a consistent record of paying debts by their due dates.
Get a Business Credit Card
Using your personal credit card to cover business expenses will not help you in the long run. It’s best to get a credit card just for your business that you can use regularly and allows you to pay on time. That plays an important role in building credit history. Some business credit cards require a personal guarantee, meaning that the owner must repay the debt if the business cannot.
During the application process, you will be assessed; lenders might review both your personal and business credit. A business credit card also opens the door to rewards and perks. A few credit cards offer cash back, travel points, and discounts on office supplies; these small initiatives can help a new business make the most of its budget.
Apply for a Business Line of Credit
A line of credit is like a revolving loan; it allows you to do several things. You can draw funds up to a set limit, repay, and borrow. A line of credit (LoC) is useful when you are starting; it allows you to buy inventory that covers cash flow gaps and lets you pay suppliers before customers settle their invoices. Before you apply for a business line of credit, you might need to fill out an application form and provide proof of your business’s registration, including its name and structure. You will also be asked to provide recent financial statements or business bank statements, along with your personal credit history.
Monitor your Business Credit Reports
Monitoring your business credit reports works in your interest; it ensures that lenders and partners see accurate information and identifies problems early on. In Canada, two main credit bureaus, Equifax Business and TransUnion Business, provide free or low-cost credit reports for small businesses. Checking these reports regularly allows you to stay on top of your game by spotting errors and planning for future financing.
Keep your Records Clean
Keeping your records clean helps you, as a business, operate efficiently, meet legal obligations, and make sound financial and strategic decisions. Good bookkeeping is the backbone to building a line of credit. There are many tools you could use; free tools like Wave, for example, allow you to store receipts, generate invoices, and reconcile accounts without a steep learning curve. For starters, be sure to save all your invoices digitally and keep personal and business purchases separate.
Grow your Credit Over Time
Your credit score won’t grow overnight; nevertheless, with consistent use and on-time payments, you can expect to see progress. When your credit score rises, that opens the door to better borrowing terms and access to more financial products, enabling you to apply for higher loans when you need them.
Building business credit doesn’t happen by chance; it takes time. By following these steps above and starting early, you will have a stronger profile that will help you when you actually need financing.
David Messiha | Staff Writer
