A healthy business credit profile is a definite requirement for a healthy business. Most of the business owners tend to overlook this fact, and still, they keep on wondering, how to build a business credit? These might be the same people who are not completely aware of the business credit. This is the first myth they have, where they fail to distinguish between the personal credit and business credit. Obviously, in this case, we are referring to the small-scale business owners. It is true that like an individual business also pay taxes, earn income and pay to the debtors. The performance metrics of business, which creates the business credit are absolutely different from an individual. These performance metrics help in building business credit fast for a business. So, how to build business credit fast? It is simple, just maintain good relations with your Vendors and suppliers. Pay your creditors on time, or at least keep them informed in case if there is a delay. This includes repaying any finance, that have been borrowed from any financial institutions. Get a business credit card, which enhances the credit prospect of the business and helps in creating the credit history. Monitor business credit history, and resolve any significant errors. Lastly, get the business incorporated. This definitely helps you to build business credit fast. Hence, we can see the key parameters for building business credit are not applicable to individuals.
image source: creditworks.co.nz
Secondly, most of the business owners think that business credit is not available from the merchants without any personal liability or guarantee. They feel credit itself is not the real credit from the real merchants. But, the fact is many of the merchants do provide business credit even without a personal guarantee. Even though this is not advertised much. How to build business credit fast, even if you don’t have any personal guarantee for business credit? In fact, a business owner without any personal liability or guarantee can avail business credit from an institution like Home Depot & Lowes, and start building the credit profile for the business.
The third myth is, business owners think that the credit limits for the business credit are much low with a higher rate of interest. This is nothing more than a myth, and sometimes because of this myth business owners prefer to borrow from unorganized lending markets. They ultimately end up in paying much higher interest. However, the truth is the credit limit of business credit is much high, and some of the financial institutions provide flexible credit limit. The higher the credit limit is, with higher unutilized credit, the higher the credit score will be. The rate of interest is not high but it is not as low as retail consumers. As we know, that financial institutions have differentiated policies for retail customers and businesses.
image source: turbodispute.com
The fourth myth is, business houses think that if they pay all the bills on time, their credit history will improve drastically. They think that the timely payments can make the credit history much stronger and good. However, they don’t know that the credit history will only improve if the creditors who receive the payments report to the credit reporting agencies about the received payments. So, even if the payments are made to the vendors and merchants on time, if they don’t report to the credit agencies then the business credit profile is not going to improve.
Lastly, most of the business owners feel that they can get business loan solely based on their business credit profile. However, this again not true. Apart from the credit profile, cash flow statement, revenue history, and host of other documents are checked. So, even if there is a healthy credit profile, it doesn’t guarantee an instant business finance.
