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10 Ways to Improve Your Business Credit Profile
A strong personal credit profile demonstrates your business’s creditworthiness to a potential lender. More than a third of companies that have been in business for at least two years that apply for a loan get denied, as stated by data from the Federal Reserve. One of the main reasons why businesses are unable to qualify for a small business loan is because they have a weak credit profile or a low credit score.
To increase your chances of a loan approval, you need to prove that you’re able to manage your money and sustain positive cash flow. Here are a few ways you can improve your business credit profile:
1. Pull Reports and Check for Errors
Business owners and individuals tend to check their credit only when they need capital. But one way to improve your business credit profile is to regularly review your reports for errors. Getting into this habit can ensure minor errors don’t adversely affect it.
Did you recently pay off your balance for a new equipment purchase? If the payment isn’t mirrored in your report, chances are a clerical error may be to blame. If the information in your report is inaccurate or out of date, you need to file a dispute through the credit reporting agency’s website.
The three major business credit bureaus include FICO Small Business Scoring Service (SBSS), which is the only one used by the U.S. Small Business Administration; Dun and Bradstreet (D&B) PAYDEX; and Experian Intelliscore. A business credit score is based on your business’s history of payments to suppliers and lenders. However, it can also be impacted by industry, business size, and total revenue. Each bureau uses its own metrics and data points to determine your creditworthiness and has slightly different ways of filing and resolving a dispute.
Regularly review your credit reports. Correct any errors promptly, as incorrect data can negatively impact your credit score. Use reputable credit monitoring services like Credit Karma or your banks.
2. Keep Your Debt Load Low
Debt doesn’t always lower your score. But it can if your debt financing ratio is too high. There are several ways to effectively pay down business debt, including eliminating excess costs, restructuring debts through a third party, and formulating a payback plan. Additionally, you should always be aware of your current financial situation and adjust your budget for unexpected changes in cash flow. Keeping your debt load low will improve your business credit profile and allow lenders to see that you’re in control of what you owe and can pay off expenses before the due date. The lower your debt, the less risky lending to you may seem.
3. Set Up Automatic Payments
Every payment you make can positively impact your credit score. Aim to pay bills a little early, as this can help build credit faster than paying only on the due date. Avoid late or missed payments by enrolling in automatic payment systems. Consistent, on-time payments show financial responsibility.
4. Sign up for Business Credit Cards
Opening a business credit card account can help you in two different ways. First, your payments on the card will be reported to credit bureaus, helping you build credit. Second, if you choose a card with rewards, you can earn cash back, miles, or other incentives for everyday business expenses. Research different cards and select one that best aligns with your business’s needs.
5. Increase Available Credit on Business Credit Cards
Lenders also look at the amount of credit that you can use and prefer a lower credit utilization ratio. To raise your available funds while lowering your ratio, get into the habit of paying off all your bills in a timely manner, ideally before they’re due. As pointed out by NerdWallet, D&B gives sterling scores – 100 using its PAYDEX metric – exclusively to those who pay off what they owe before the deadline. Also, aim to use your business credit cards on a regular basis. By consistently using your cards, holding a reasonably low balance, and paying all creditors on time, you should improve your business credit profile.
6. Maintain Steady Cash Flow in Your Bank Account
While it’s important to spend time on building your brand and generating sales, you need to maintain the amount of money moving in and out of your business. Positive cash flow is an indication that your business has the working capital needed to settle debts, pay expenses, and cover unforeseen expenses. While cash flow doesn’t directly impact your credit profile, lenders consider it when evaluating your financial stability. Implement effective cash flow management practices, such as monitoring receivables and payables. According to the U.S. Small Business Administration, a lack of steady cash flow is the No.1 reason for business failure.
7. Separate Personal and Business Finances
When you add “LLC” or “Inc.” to your business name, you’re taking the first step toward establishing a separate business track record. Legally separating your business from your personal finances allows it to develop its own credit history. Use separate bank accounts, credit cards, and financial records to avoid confusion. This practice not only helps build business credit but also simplifies tax reporting.
8. Build Relationships with Suppliers and Vendors
Establishing and maintaining positive relationships with suppliers and vendors can offer many benefits. Don’t limit interactions to only transactional moments. Instead, regularly check in with your suppliers and vendors. Understand their needs, challenges, and goals. Building rapport fosters trust and encourages them to support your business.
Relying heavily on a single supplier can be risky. Seek partnerships where both parties benefit. Diversify your supplier base to mitigate risks. Having multiple suppliers also allows you to negotiate better terms and pricing.
9. Work with an Expert
While there are plenty of strategies you can personally use to raise your business credit, it’s sometimes helpful to consider working with financial experts who specialize in business credit. They can provide personalized advice and help you navigate complex credit issues. Look for certified public accountants (CPAs) or credit consultants with experience in small business credit.
10. A QuickBridge Loan Can Help Improve Your Business Credit Profile
Following these tips can improve your business credit profile and put your business on track for success. In addition, consistently paying down a loan obtained from QuickBridge is an excellent way to improve your business credit profile and set you up for success.
Keeping your business credit score healthy and your business credit profile in shape makes it easier for you to secure financing to cover business expenses in the future.
If you find yourself with a less-than-stellar business credit profile, but need immediate working capital, QuickBridge can help. We specialize in fast lending to small businesses. We require minimal paperwork to apply, and our decision process is quick. Plus, if approved, you’ll see the funds deposited into your account within 24 hours.
Contact us to get your small business loan application processed today.
