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Most business owners don’t like to hear this, but when it comes to building business credit, the slow and persistent win the race.
Nat Wasserstein, a restructuring consultant and managing director of Lindenwood Associates in the Greater New York area, believes it takes three years or more to build credit for a business.
“Usually loan applications say they want you to exist for at least three years,” says Wasserstein.
In some cases, lenders may require as little as one year, he says, but that’s not the norm.
“They want to see you were around,” Wasserstein says. “If you have it, they want to see that there is nothing outstanding. There are no courts. They should have enough time to decide if they want to lend to this company.”
Why business lending is important
You can apply for a business credit card or small business loan based on your personal loan if you’re just starting out, but it’s a good idea to separate your personal loan from your business loan in the long run.
Once you have established your business loan, you can apply for a business loan without any personal liability; the business becomes responsible for repaying the loan.
A good business loan offers many other benefits, including:
- Lower interest rates on loans
- More confident in making decisions
- Stay ahead of your competitors
- Reducing Stress for the Business Owner
Some of these benefits, such as lower interest rates, are obvious. This gives you more money to spend on growing your business and getting ahead of your competition. Other benefits are not so obvious.
For example, a business owner who knows that the company has a good credit history should not worry so much about the possibility of obtaining financing, which can reduce stress and allow him to focus on growing the business.
How to start building a business credit score
Your business credit score is based on your experience with your business finances, such as your current business account, any credit accounts you open with vendors such as office supply stores or hardware stores, and any business credit cards you open, as well as any loans you take.
Formalize your business
Each business owner must have a checking account with the name and federal tax number of the business, which must be separate from his personal account. This helps create the business as a separate legal entity from you.
Take good care of your checking account
Be sure to maintain an adequate balance so that you don’t run into overdrafts or waivers. This will show creditors that you are responsible for your finances.
Stay up to date on all your bills
Wasserstein notes that many reputable suppliers report to Dun & Bradstreet and other credit bureaus. It’s even possible that a provider like your phone company will report your payment plans to the credit bureaus, so stay tuned, he advises. Put bill payment reminders on your calendar so you don’t have any marks on the radar screen for the next few years.
When to Apply for a Business Credit Card
After repeated good financial behavior, you will improve your chances of successfully applying for a business credit card. A good time to try this is at the one year mark. At this point, the credit issuers will have enough activity to evaluate you.
You can also check your business credit report to make sure your credit is in a good place before you apply. Sometimes creditors take some time to report to the credit bureaus. Credit card issuers will likely check your personal credit as well, so make sure you want it there before you apply.
If you’ve fallen behind and paid some bills late – a common thing for new businesses with unstable cash flow – wait until you have 12 months of a perfect or near-perfect track record to apply.
As you pay this bill on time each month, you will build a stronger and stronger credit profile. Just make sure you don’t use all available credit. This will lead to high credit usage which will hurt your business credit.
bottom line
Even if you can only get a credit card with a small credit limit, like $1,000, be patient first. Rome was not built in a day, and neither was a business loan.
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