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business credit for financing - Complete Controller

The correct credit score is essential because strong business credit scores can help business owners secure improved interest rates in financing. It might also contribute to decreasing the circumstances to prepay for a particular good or service. It also helps to ensure enhanced trade terms along with valuable suppliers in a specific industry.

One of the chief reasons people in business lack funding is the failure to understand their credit. In the American Dream Gap Report of 2015, approximately one in four trade companies do not know why their loan applications were rejected. Yet, trades that knew their business credit scores had 41% or more likely to get accepted for minor business financing. Check out America's Best Bookkeepers

Putting the Business on Map

If you have just initiated the business or are about to start the company, it might not be necessary to put yourself on the map. You can’t establish credit before building the business. For this reason, acquiring a business phone number and getting listed in the directory might be the most appropriate option. A credible company must obtain a phone number. Depending on your business’ nature, you might also be willing to open the bank account with your official business name and pay the bills with your official business account

 

The Establishment and Maintenance of effective Credit Relationships with Vendors and Suppliers

From a business perspective, an unbroken line of credit with vendors associated with an industry is the gold standard. Effective relationships are likely to assist you in preventing the payment upfront for services or goods. If you can secure a line of credit terms with suppliers who report the payments to business credit reporting agencies, you can create a positive business credit history. Your suppliers or vendors are not bound to report to the credit bureaus. Thus, it will be beneficial for you to be proactive and open accounts with these suppliers or vendors. The formation of effective credit relationships with the vendors or suppliers requires bookkeeping, to avoid payment-related ambiguities. Check out America's Best Bookkeepers

Acquiring the Employer Identification Number

In the business world, it is also beneficial to acquire Federal Tax Identification Number, also stated as EIN. This social security number is useful for your business. It depends on the nature of your business, and you may require opening the bank account by using your business name. Acquiring the employer identification number is likely to contribute towards securing your business contracts.

Credit monitoring

Approximately 25% of the business owners reported that credit reports are likely to possess significant errors. In this regard, the strict and regular monitoring of your business’s business credit history might assist you in identifying false issues and blemishes. In case you found the errors by yourself, you must file a dispute by contacting the reporting agencies.

Always Pay on Time

Paying on time is the first and foremost rule aligned with any favorable credit situation. Payment of bills within the provided timeframe indicates the reliability and ability of management, alongside the amount of debt conclusively. Considering late payments, specifically including obligations, tend to affect the rating of credits and harm the status of the company. Check out America's Best Bookkeepers

Access to a Business Credit Card

Possessing a credit card for business with an organization that already has an extensive credit report is a practical approach for creating commercial financing. However, be careful to avoid over-expansion of personal business financing.

Consider incorporating your business.  When adding Inc. or LLC to your company, you will legally separate your business and personal data. If you choose not to do so, your business and personal credit cards (among other things) will be legal.

Transfer business expenses away from personal finances

Once you have opened a credit card, a credit line, and a bank account, those accounts will be associated with your company’s legal name, keeping your accounts separate. Add your new company or Limited Liability Company; it will create a great distance.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

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For a small business, it is critically important to have a strong business credit. Its significance is due to two reasons. One is that it is helpful in maintaining a separate personal and business credit history, secondly, it is helpful in building a strong credit score. Strong credit scores have various benefits for a small business. A strong business credit score is helpful in securing better interest rates and having better trade relations with valuable suppliers. Lending money or getting more credit to grow your small business becomes much easier due to strong business credit. 

Let’s discuss the ways by which you can build business credit for a small business.

Mapping of the business

The first ever step in building business credit is to establish your small business. Building business credit is a dream without establishing your business. Just opening a business does not mean that you are now in the main streamline of the business world. Following are the necessary elements to a mainstream business.

  • Obtain an EIN for your small business. EIN is a social security number used for filing federal taxes and for opening the business account.
  • Obtain a phone number and get it enlisted in the directory so that it can be found on search. A mobile number, landline number or VoIP can be used for a small business. This number should be on the legal name of the small business.
  • Open your bank account. This account number should be opened in the legal name of the small business. All transactions and bill payments for the business should be done through this business account.

A good relationship with suppliers and vendors

A solid line of credit with suppliers and vendors is an asset to your small business. Establish and maintain a pleasant relationship with them. Having to prepay for things can be avoided by building a better relationship with vendors. A simple method for building a positive credit history is to build a line of credit with three to five suppliers or establish payment terms of net thirty days. Ask this supplier to report the payment history of your small business to credit reporting agencies.

Timely payments

Timely payments have a very positive and amazing effect on your credit profile.  Late payments badly affect your image. Timely payments of all bills depict that you are a reliable business owner and you have enough money to pay on time. Moreover, you can pay off debts timely. Vendors, lenders, and creditors don’t hesitate to build any kind of contract with you if you have a history of paying on time.

Business credit card

Open at least one business credit card. More than one business credit card is also recommended, but use them cautiously and avoid overspending. Preferably, the business credit card should be opened with a company which reports to credit card reporting agencies. These companies are beneficial for establishing credit.

Incorporate your small business

The small business should get incorporated to separate legally business and an owner’s personal profile. Incorporation can be done either by adding Inc or LLC. This is a legal way for separating personal credit history from that of the business. And, ultimately helpful in establishing and building business credit for your small business.

Separation of personal and business expenses and finances

Business expenses should not be paid from your personal credit cards and personal bills should not be paid from the business accounts. Both credit profiles should be clearly separated. This will not only help to build business credit, but also make payment of taxes easy and comfortable.

Monitoring of small business credit

Credit card statements should be regularly monitored. Any error should be reported to credit reporting agencies. About 25% small business owners have reported errors in their credit reports.

Conclusion

Building a business credit for your small business is key to further progress and growth.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

 

 

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Business People meeting Planning Strategy Analysis Concept
Before banks decide to grant you a loan, they take all of the financial aspects of a business, including its financial statements, into consideration. The balance sheets, income statements and cash flow statements are major documents to be reviewed by the bank because they are liable to safeguard their shareholders’ capital and comply with regulations. They also need to prepare for the worst as the borrower might go bankrupt, which makes recovery of the loan extremely difficult. Therefore, before extending credit, banks thoroughly go through the financial statements of individuals and businesses to ensure the repayment of a loan.

Income Statement

An income statement breaks down the sales and expenses of a company into all its components and also highlights the net profit. By carefully analyzing the income statement, banks try to figure out the expenses that go into making a certain product or service, including direct and indirect expenses. Before extending credit, financial experts, hired by banks, go through the income statements to find out if a firm invests in premium products with low volume or indulge in high volume sales at a discounted price. All of this information is necessary to determine if the business under scrutiny is sustainable over a long period of time or if it is just another hopeful venture that falls into oblivion, like many others.

Cash Flow Statement

For a banker, it’s valuable to assemble creditworthiness of data from balance sheets and income statements. However, the eventual goal is to measure the cash flows of the borrower. By reviewing liquidity arrangements, the bank ensures that the company has a steady influx of cash and that it is eligible for extending credit. A cash flow statement offers an understanding of a company’s liquidity movements in operating, investing and financing activities.

The flux of cash, whether in or out, can be because of past actions by the company. Therefore, cash flow is carefully analyzed by the bank. If there is any loan that was taken previously, it would show in the cash flow. Basically, the goal of the bank is to see if you have enough cash resources to run the business and pay off the loans at the same time. Banks actually like extending credit to clients that have a positive cash flow statement because, to run their business, they require people and businesses that are in need of a loan. So, it ultimately serves their own interest as well.

Balance Sheet

The balance sheet of a company shows what the company owns and what it owes in the form of liabilities. The assets of a company, which include land, machinery, cash, and other intangible assets, are analyzed to judge the worth of a business. Any loans and accounts payable fall under liabilities that need to be paid off by the company. Information about equity and stockholders is also included in the balance sheet and, before extending credit, banks go through that information to find the liable parties in case of a nonpayment. Also, the assets of the business are the first items to be disposed of by the bank if the business fails to repay the loan. A balance sheet offers a detailed description of a business and is the most vital source of information used by banks and other stakeholders.

Other Considerations Before Extending Credit

Most of the information about a company will come from these above statements. However, there are always some details that remain hidden from these reports and are sought after by the bank. For example, if a company has been involved in a lawsuit or any other judicial proceeding, the information will not be present in the statements. To tackle that, banks go through extensive research about the company operations and sometimes even conduct interviews with company’s management and employees to better understand the situation. In short, banks take all possible measures before extending credit to ensure its full repayment with interest.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

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A business credit score reflects the ability of a business to pay back a loan. It is rated on a 0 to 100 scale. 

Calculating Your Business Credit Score

Your business credit score is calculated by using the statistical algorithm, designed to measure several traits of your company and financial history.

Among these factors are:

  • Credit use ratio
  • Payment history
  • Length of credit history
  • Unpaid debts
  • Public records, such as bankruptcies, liens, and judgments
  • Business size
  • Business risk

Some of the factors are similar to calculating a personal credit score, however, there are many factors that are different in building business credit scores.

How to Build and Improve Business Credit Scores 

Get a Business Credit Card or Line of Credit

Of course, the first step in building a business credit score is to get a business credit card. You can also get a line of credit for your business. Be sure that you are getting a business credit card for your business financing, not a personal credit card for your individual finances.

Separate your Business and Personal Expenses

This is not only important for avoiding accounting mistakes. This is also essential in building credit scores for your business.

Select your Supplier and Lenders with an Eye on your Business Credit

Many small businesses have incomplete business credit accounts because their dealers and moneylenders don’t report costs to the business credit unions.

Pay Your Bills On Time or, Better Yet, in Advance

If you want to make sure that your business credit score is high, then you must pay on time. A delay in payments ruins your business credit and a delay in payments from your company affects the cash flow in other businesses. This is the same as when your clients do not pay you on time and it badly affects the cash flow process of your small business.

Much of your business rating depends on how you pay your suppliers and other contractors within an approved time frame. If you pay in advance or on the spot, this practice will make your business credit even better. Your suppliers and contractors will further put remarks like “prompt”, “pays early”, etc. 

The reason for such nice additional remarks is that every business needs a prompt cash flow for its running. Other companies might also be going through cash flow problems. Early payments or payments done on time significantly reduce cash flow problems.

Your business credit score is used to measure the lending and credit risk linked to your company. A good business credit score shows that your company can manage debts and finances efficiently.

Utilize Credit, but not Too Much

Your business should utilize the credit score it has, but make sure not to overuse it. If you continue utilizing your business credit score for your business operations, it will be beneficial. You will keep building and utilizing some of your credit scores. It is just like taking a loan and paying it back promptly. It builds a trust in your business’ ability and financial stability. But, consuming all of the credit score or too much of the score means your company is not financially stable and is relying on the credit score it builds over time.

Fix Errors on your Business Credit Score Report

If there are errors in your consumer credit report, there is a fixed process for disputing them. However, for business credit report errors, there is a different process everywhere. Every bureau has it’s own procedure for disputing business credit errors. You can submit disputes electronically.

Conclusion

Using a business credit card or line of credit helps to build your business credit score. You have to build and keep improving your business credit score by making on-time payments, using the business credit card, and continue utilizing some of its scores to your benefit. All of these steps build a better and more trusted image of your business.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Interest rate financial and mortgage rates concept. Businessman hand show icon percent 3d sign
As a shrewd consumer, you most likely have a fair idea about managing your personal credit. However, as a new business owner, you might not yet have the capacity to establish business credit. Your personal credit score will not come in handy if you require business financing at any point in time. Instead, a strong business credit history will be needed. Business credit basically performs the same function as personal credit by measuring trustworthiness. The credit bureaus collect information from vendors, banks, and other business partners to measure your solvency and allot you a score which, unlike a personal credit score, ranges from 0 – 100.

Why Business Credit is so Important

Just as the strength of your personal credit score determines the kind of credit products you are eligible for and their terms and conditions, a business credit score is a vital component in measuring your métier as a business. Your business partners want to see a reliable track record in terms of payments and other financial handlings. The credit score allows them to make informed decisions about your business, therefore, a good credit score can open up the doors to inexpensive and enduring credit in the future.

Ways to Establish Business Credit

While establishing business credit may seem to be an arduous task for a start-up, here are some ways to do that without much hassle.

Establish a Business Entity

As mentioned before, your aim should be to reflect your payment history on your business accounts rather than personal ones. Therefore it’s vital for it to be a separate and registered entity. Your aim should be to identify the entity that offers you the best solution in terms of your needs and creditworthiness. The two most common options are sole proprietorship and partnerships as they are easier to manage at the start. However, these entities are independent.

If you have chosen a sole proprietorship or partnership, it will be hard for you to differentiate and establish business credit as a separate entity. Both structures do not specifically distinguish an individual and the business. Therefore, it is unable to help you in developing business credit.

The proper structures for establishing business credit are a ‘C Corporation’, ‘S Corporation’ or an ‘LLC’ (Limited Liability Corporation). While it’s important to think of a structure that suits your need of building credit, it is not the only thing that matters as the right business structure depends on many other factors as well.

Get a Federal Tax ID

The IRS relies on an employer identification number (EIN) to observe businesses, especially queries related to employee payroll expenses. It is necessary for every business to get this number as it performs a variety of important functions and establishes business credit at the same time. You will be required to file an application with your state or county government office.

Establish a Dedicated Business Address and Phone Number

While it may sound pretty simple, setting a dedicated office for your business along with a landline establishes your credibility which eventually has a positive effect on your credit score. You will be able to register with business directories and just being listed gets a few points added to your credit report. A phone line can establish business credit by developing a formal trade credit relationship with your vendors and other business acquaintances, which is regarded as a good sign by credit companies.

Institute Trade Lines with Suppliers

Maintaining good relations with only a handful of vendors and suppliers is good for your credit score. However, to really enhance it, you must develop good credit relations with a variety of business partners. As your small business grows, you will be able to procure from many different suppliers that will open up multiple trade lines for you. It will be even better if your partners extend credit and allow you to pay after weeks or months as this shows their trust in you, which is great to establish business credit.

Conclusion

As a small business owner, you must realize that building credit will take time and, if you get the basics right, you will rise up the ranks past your competition. Pay off your business loans and bills in time and follow the guidelines above to ensure that you are on the right credit building track.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

building business credit - Complete Controller

A business credit score reflects the ability of a business to pay back a loan. It is rated on a 0 to 100 scale. 

Calculating Your Business Credit Score

Your business credit score is calculated by using the statistical algorithm, designed to measure several traits of your company and financial history.

Among these factors are:

  • Credit use ratio
  • Payment history
  • Length of credit history
  • Unpaid debts
  • Public records, such as bankruptcies, liens, and judgments
  • Business size
  • Business risk Check out America's Best Bookkeepers

Some of the factors are similar to calculating a personal credit score. However, many factors are different in building business credit scores.

How to Build and Improve Business Credit Scores 

  1. Get a Business Credit Card or Line of Credit

Of course, the first step in building a business credit score is to get a business credit card. You can also get a line of credit for your business. Be sure that you are getting a business credit card for your business financing, not a personal credit card for your individual finances.

  1. Separate your business and personal expenses

This is not only important for avoiding accounting mistakes. This is also essential in building credit scores for your business. Check out America's Best Bookkeepers

  1. Select your Supplier and Lenders with an Eye on your Business Credit

Many small businesses have incomplete business credit accounts because their dealers and money lenders don’t report costs to the business credit unions.

  1. Pay Your Bills on Time or, better yet, in advance

If you want to make sure that your business credit score is high, then you must pay on time. A delay in payments ruins your business credit, and a delay in payments from your company affects the cash flow in other businesses. This is the same as when your clients do not pay you on time, and it affects the cash flow process of your small business.

Much of your business rating depends on how you pay your suppliers and other contractors within an approved time frame. If you pay in advance or on the spot, this practice will make your business credit even better. Your suppliers and contractors will further put remarks like “prompt,” “pays early,” etc. 

The reason for such nice additional remarks is that every business needs a prompt cash flow for its running. Other companies might also be going through cash flow problems. Early payments or payments done on time, significantly reduce cash flow problems.

Your business credit score is used to measure the lending and credit risk linked to your company. A good business credit score shows that your company can manage debts and finances efficiently. Check out America's Best Bookkeepers

  1. Utilize credit, but not Too Much

Your business should utilize the credit score it has, but make sure not to overuse it. If you continue utilizing your business credit score for your business operations, it will be beneficial. You will keep building and utilizing some of your credit scores. It is just like taking a loan and paying it back promptly. It builds trust in your business’ ability and financial stability. But, consuming all of the credit score or too much of the score means your company is not financially stable and is relying on the credit score it builds over time.

 

  1. Fix Errors on your Business Credit Score Report

If there are errors in your consumer credit report, there is a fixed process for disputing them. However, for business credit report errors, there is a different process everywhere. Every bureau has its procedure for disputing business credit errors. You can submit disputes electronically.

Conclusion

Using a business credit card or line of credit helps to build your business credit score. You have to build and keep improving your business credit score by making on-time payments, using the business credit card, and continue utilizing some of its scores to your benefit. All of these steps build a better and more trusted image of your business.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
Scrabble tiles CREDIT played words SCORE REPORT HISTORY

We have worked with thousands of small businesses over the past decade and one of the most important pieces of the business success puzzle is credit. When a business is young, it will rely heavily on the owner/shareholder’s credit but don’t let the opportunity pass you up to establish business credit as you go.

Check out America's Best Bookkeepers

Business Credit Cards

Establish business credit cards – even if you have to make a personal guarantee – and make sure you are establishing with companies that regularly report to the credit agencies. Be vigilant about asking for credit line increases every 6 months or so and never pay late.

Credit Reporting Agency

Dunn & Bradstreet is a well-known business credit monitoring and reporting agency. Set-up a profile for your business with D&B and monitor your credit relationships closely. You can even ask companies that you frequently buy from on credit to give you a trade reference on D&B.

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Business Bank

Finally, establish a relationship with a business bank. I recommend one of the national banks like Chase, Bank of America, or Wells Fargo because they will readily extend business lines of credit to clients that have kept funds on deposit for 5+ years and have an excellent payment record on their accounts. A business credit card or another revolving credit account from one of these institutions will put you in the perfect position to get the big equipment loan or commercial mortgage you will want when you grow your enterprise from small to midsize. One of the reasons it is so difficult for businesses to move from that 1 – 5 to the 6 – 20 million in revenue range is the lack of credit. It takes money to make money and the big businesses get that way because they know how to responsibly leverage debt to build their business.


Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers