Maintaining a strong credit score is important if you’re planning on applying for a small business loan. Businesses need to have a good credit score not only for obtaining loans but also for operating successfully in the future. Having great credit opens doors for various opportunities such as:
- Securing loans from top lenders
- Accessing larger approved amounts of capital
- Getting favorable interest rates
- Easily tap into trade credit
It’s never too late to improve your business credit score. Here are six ways to do so:
1. Pay on time
You can improve your credit score by keeping track of all payments due and paying them on time. Late payments can negatively impact your credit score so it’s best to make sure that you pay your debts on time – whether in banks or your suppliers. Additionally, late payments typically include penalties or fees. These fees can add up and you’ll eventually pay more than you owe. Eventually, you’ll be buried in debt if you don’t do something to resolve it.
Make a point of making your payments on time. If possible, you can pay in advance to avoid missing deadlines and by doing so, in some cases, even receive a deduction. Be sure to set-up reminders or automate to streamline your payment process. This makes sure that you won’t have to miss another payment again in the future.
2. Avoid opening new accounts
As much as possible, don’t open new accounts once you have your business credit card. Applying for new credit may negatively affect your credit score. It will also affect your ability to make payments in the future, especially if you’re struggling with finances, to begin with. If you need to open new accounts, make sure to keep them to a minimum to keep your credit steady.
3. Don’t close your old accounts
Most people close old accounts after they paid off the debt. However, keeping them open, and or active is good for your credit score. When you close them, you reduce your available credit. This affects your credit utilization ratio. Since you still have other unpaid debts, your credit utilization will be higher.
Potential lenders consider credit history when applying for a loan, so keeping those accounts open will benefit your credit report. Having low credit utilization is a positive thing. This shows lenders and investors that you are reliable when it comes to paying off debt.
4. Separate business and personal finances
It’s important to categorize all of your accounts properly. By keeping your finances separate, you can easily maintain good credit on both accounts or prevent bad credit from affecting the other. When opening business accounts, use your Employee Identification Number instead of your social security number. Moreover, separating personal and business accounts will make it easier for your accountant when the tax season comes.
5. Pay attention to your business and personal credit
By monitoring your business and personal credit, you can assure that your credit report is accurate. You’ll be able to see how your habits impact your score, as well as to detect certain errors that can negatively affect your credit. Potential lenders may look at your credit score along with your business credit, so keeping both scores under control benefits your business. The reason for this is, if an owner has strong personal credit, lenders will become more comfortable underwriting the deal.
6. Fix errors immediately
As you monitor your credit report, you may find errors that hurt your credit score. Mistakes that go unnoticed may lead to bigger problems. Fixing the errors ASAP can help improve your credit report and ensure that the data presented is accurate and reliable. Call the credit bureaus immediately to report the problem. The sooner you resolve the problem, the better it will be for your credit report. Even if a $20.00 bill is unpaid, as long as it’s not settled, the credit score will continue to drop.
Moreover, be sure to work with vendors and lenders that report immediately to the credit bureaus. Reporting is extremely important because your credit report will be based on how timely you pay your dues to your suppliers and lenders.
Apply for a Small Business Loan Today
A small business loan is a critical tool that every business needs. Cash flow is the driving force of the success of a business so every entrepreneur must ensure that he stabilizes the financial aspect of his business. Moreover, small business loans allow a small business to take advantage of opportunities as they present themselves. With one, business owners won’t have to think twice about grabbing growth chances. When used the right way, you will be able to expect stable growth in your company and ensure success in your venture.
Get the Funds You Need to Start a Business Today!
Starting a business can be the most exciting but overwhelming experience of your life. But to keep it open, you need to be able to secure enough funding. Business loans are a great financial resource, and while navigating the entire application process could be daunting, there are many resources that can help make the whole thing easier.
Use the guide above as your starting point. Once you get a grip on how business loan application works, it will be easier for you to get the funding you need to see your business succeed. Good luck!