5 Credit Tips For Startup Business Owners

5 Credit Tips For Startup Business Owners

by Johnny S

When launching a startup, new business owners can use all the help they can get. Navigating through the ins and outs of the business world can be confusing and stressful, especially when it comes to financing and credit. 33% of small businesses report that financing is one of their biggest struggles. In order to qualify for a business loan, startup businesses (or business owners themselves) will need a solid credit background, which can be a challenge because most startups don’t have much credit history. Therefore, startup business owners should take measures to build up their business credit in order to have the best advantage in  business financing. Here are 5 credit tips for startup business owners.

  • Incorporate your business

    Forming an LLC (limited liability company) or a corporation allows business owners to separate their personal assets from their business assets. Sole proprietorships and general partnerships have unlimited personal liability, which puts the owner’s assets at risk if the business is in debt or fails. Incorporating a business not only builds credibility, but it will also protect business owners in the long-run. In the same way, incorporating a business will allow owners to separate their personal credit history from their business credit history, which is beneficial for both the owner and the business.

  • Get a business credit card

Another way to build business credit is by using a business credit card. If your business is still young, there is a likely chance that it will get turned down for a loan because of its lack of credit history. However, if you apply for a business credit card, you can start building up your business credit each time you swipe the card. Apply for a card with a lower limit or a store-specific card if you tend to shop at the same place. Just make sure every payment is on time and watch your business credit score go up!

  • Borrow from alternative lenders who report to credit bureaus

If you’re just starting out and you only need a loan to cover short-term and smaller expenses, consider borrowing from alternative lenders who also report to credit bureaus. This should be considered as a last resort because it can be risky. Some alternative lenders such as car title loan companies can help borrowers get fast cash by using their car as collateral. Personal loans can also be secured or unsecured depending on the lender. However, the trade-off is that these loans can have very high interest rates. If you do decide to take out a small loan with an alternative lender, make sure you are able to pay off the entire loan quickly so you are not as affected by the high interest. When you make your payments on time, the lenders will report this to the credit bureaus, which will help you build your business credit.

  • Open lines of credit with vendors

As you work on building your business credit, it is important to build trust with your vendors. One way to do this is by opening a line of credit. If you open a line of credit with your vendor, it is likely that they will give your business some time to pay your invoice. However, keep in mind that although you are given some flexibility, treat your vendor with respect by paying on time. Be sure to open lines of credit with vendors who report their account activities to the credit bureaus–this is the only way to build up credit through your relationship with your vendor.

  • Keep your credit report up-to-date

A crucial step to building up your business credit is keeping your credit report up-to-date. Just as with personal credit, your business credit report could contain inaccuracies or mistakes, which could in turn give lenders an inaccurate picture of your credit history. Companies that specialize in credit repair look for these mistakes in your report and dispute these errors with the credit bureaus. It’s important to check your credit report in order to catch these mistakes so you can present the most accurate score to lenders.

With these 5 tips in mind, new business owners will be able to build up their credit in no time.

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