Steps to Building a Good Credit Score

It is very important for businesses to be in good books of lending institutions. This will enable them to procure the funding needed for their business's set up or growth. Building a favorable credit rating is not an instantaneous process, but one that takes time and careful effort. The business owner has to be aware of certain things and follow them judiciously to build a sound credit rating over time. The steps to establish a good credit score or improve a suffering rating are delineated below. They will help you establish credibility with all lending and financial institutions and investors that will help in procuring the funding when your business requires it.

For being able to build its credit history, your business will have to be created as a business entity. You have to create it as a Limited Liability Company (LLC), or incorporate it. You cannot remain as only a sole proprietor, since that business status will not help you secure a loan from any lending company. A loan given to sole proprietor would seem much like a loan extended to an individual.

A very famous saying is that there are three most key things to the success of a business, and they are location, location and location. A good location for your business will give considerable confidence to lending companies, and add credibility to your business. Having good means through which potential customers, suppliers, etc. can get in touch with you is equally important.

Having a phone number where they can reach you, a web site where you can familiarize the interested people with your products or services, as well as an email address as an alternative means to establish contact with you, will provide different options for other entities to contact your business. Make sure that you list your business with the relevant agencies with your business’s name appearing identical to its legal name, and the contact information (phone number, email address, website address).

Get all the business permits and licenses you require to operate your business legally. There could be tax resale licenses in your city, county or state. Ensure that you are aware of the legal obligations on your business in this regard, and that you comply with them. Be sure to follow all guidelines that apply to your business. As for financial statements, preserve all necessary paperwork pertaining to financial statements for at least the previous two years. Employ a Chartered Accountant to help you keep up with the paperwork. Get a tax ID for your business as well. Your business's legal name should have the corresponding federal and state tax ID listed with it.

At least one bank should be able to provide a reference for your business. This can work as a credit reference when required. You should have ideally held your account at this bank for at least 2 years and had a balance of no less than $10,000 during the last 3 months. This would put your company in a good position to be extended credit to. Your bank can provide the transactions to show how your business funds are handled.

It will also help to have about 5 trade references that your business has taken credit from. These could be your suppliers of raw materials or any other commodity. It is good if you have had frequent transactions with them. Talk informally to these entities to see if they would give your business a favorable credit rating. If they will provide a positive rating, include them as references. Any credit cards that you use solely for business purposes are also good references to provide to the credit reporting companies. Also, ensure that you also pay your bills well in time to avoid any late payments or defections affecting your credit report.

Resources:

The 4 keys to great credit