Business credit is an important financial tool for business owners. Having a good business credit has a lot of benefits, such as getting a higher business loan limit, building relationships with vendors and business partners, and many more.
Overall, your business credit indicates how reliable your business is financially.
How Can Businesses Benefit from Good Business Credit?
Building your business credit can help you seize more opportunities such as:
- Getting higher business loans and credit lines more easily
- Qualifying for government contracts and grants
- Obtaining lower business insurance rates
- Getting funding from investors
- Securing longer terms from suppliers and vendors
When you know how to maintain your score, you are more likely to run a successful business.
Learn the 8 ways for business owners to build a good business credit.
How to Build Good Business Credit
1. Establish your business
The first step to establish a good business credit is by legally establishing your business. This is especially important for new businesses so you will have more credibility in the eyes of clients and lenders. You need to set up a legal name, business email, and business phone number which is listed in directory assistance. Having these details will create a consistent, professional image in your business credit reports. After these basic steps are done, start opening accounts with vendors that report to credit bureaus to establish your business credit file.
2. Get your business registered
Registering your business is beneficial for your credit score as you will appear more legitimate. In Singapore, you can make an online application via the BizFile+ website. Depending on the type of your business, you may need approval from relevant regulatory authorities before starting your application. Visit the Accounting and Corporate Regulatory Authority (ACRA) webpage for more information.
3. Keep track of your personal credit
As the business owner, your personal credit score will reflect how well your business finances will be managed. Banks and lenders will assess your personal credit score as well when considering you for a business loan. Your personal credit report is available from the Credit Bureau of Singapore (CBS) under the Monetary Authority of Singapore (MAS), showing all the loans you have taken and your repayment record. By building your personal credit profile, it will be easier to boost your business credit.
4. Start a business account and credit card
Opening a business account helps keep your personal and business finances separate, so that you can manage both better. When you apply for a business loan, banks or alternative lenders will want to see your business profits and losses, which shouldn’t include your personal income or expenses. You will also want to open a business credit card, as it can help establish good credit as long as you make payments on time. Moreover, over time you will be able to access a higher credit limit to improve cash flow. Use this benefit moderately as getting overextended can adversely affect your credit score.
5. Focus on timely payment and credit utilization
Payment history is the most crucial factor that contributes to your business credit score. Late payments, even if you are just one or two days late, can affect your credit score. As much as possible, pay on time or even early to improve your score more quickly.
Aside from on-time payments, credit utilization is also important in building a good credit score. Business owners are advised to use no more than 30% of their total credit limit to show lenders that they are financially responsible and qualified enough to meet the minimum balance every month.
6. Get accounts that report to business credit agencies
Your payment history will be assessed to predict how likely your business is to make on-time future payments. Therefore, if your goal is building business credit, you must choose accounts that report to such agencies. Aim for at least two to three credit accounts with companies that report, whether they are suppliers, vendors, business loans, credit builder accounts, or other kinds. If you don’t have any accounts with payment history, you will have no business credit report, or a report with a low credit score.
7. Open trade lines with vendors and suppliers
As an alternative to large financial institutions, you can ask your third-party vendors and suppliers for lines of credit. For example, request to order inventory or supplies with payments in the future and fulfill them on time. Then, in the long run, you can use them for references when you go for a higher business loan, to get a credit card for your business or a revolving line of credit. However, you need to ensure that you have built a communicative and transparent relationship with your vendors beforehand.
8. Monitor your credit history
By keeping your business credit history in check, you can monitor its progress and spot any possible errors early. If you find an error, immediately file a dispute with the credit bureau to report the mistake. You also need to check your credit reports and scores with more than one major credit reporting agency to see if your accounts are helping your scores. If not, you might need additional credit references.
How long does it take to build business credit?
Depending on how long you have run your business and the financing options that you choose, you need to understand that establishing good business credit takes time. On average, it can take up to two years to establish credit for your business. Keep in mind that the more on-time payments you make, the more points you accumulate over time.
What Factors Affect Your Business Credit?
Credit bureaus consider different factors when calculating business credit score, but here are the most important factors they look into:
- Company size and age
- Age of oldest financial account
- Available revolving credit limit
- Established trade lines
- Payment history to creditors and vendors
By evaluating how you do in each of these areas, you can estimate your creditworthiness and how likely you are to qualify for business loans.
Grow your Business with a Fazz Business Loan
If your business is still in the process of establishing a good credit score, but need quick, ready access to working capital, check out Fazz Business to accelerate your business growth. Our interest rates start as low as 1% with approval within 48 hours.
Apply for a Fazz Business Loan here to build, run and grow your business with peace of mind today!