You can improve your business credit profile post-COVID-19 and here are five tips to get you started.
One of the things we have learned through the implementation of the Paycheck Protection Program (PPP), is that your credit profile yet matters in the midst of a crisis such as that caused by the COVID-19.
With that in mind, what can you start doing now, and post-pandemic, to build your business credit in the wake of coronavirus?
Regardless of whether you’re applying for a loan or any other kind of small business financing, a strong business credit profile is the foundation for demonstrating your creditworthiness of business to a potential lender. Your profile gives lenders visibility into the industry you do business in, your estimated annual sales, and how you interact with your present creditors.
A business credit profile is a face that a company presents to lenders, insurance companies, suppliers, lessors, and other businesses when they decide whether for extending credit or do business with that company.
It is used for setting terms on credit, loans, lease payments, and insurance premiums to name a sum.
As a business owner, it is important to take proactive steps to improve the credit profile of your business. Once you’re aware of what info is important, you can take the steps necessary to make an effect. Fortunately, there’re some things you can do to build a stronger business credit profile in these hard times as given below.
Pay better than terms
The payment experiences other suppliers and companies have with your company have a great effect on your business credit profile.
However, paying better than terms indicates that a company pays its suppliers a certain number of days in advance. For instance, for the best Paydex® Score of 100, a company needs to pay early.
Monitor your business credit profile
It is simple to do, can be free, and has an effect. It was researched before that why various small business owners were not able to get their American Dream. The result was an American Dream Gap Report.
Though the report is some years old, its findings are still related, today maybe even more related as we crawl our way out of this current economic and health crisis. Few of the key findings include:
- 45 percent of small business owners who are denied financing get turned down more than once and 23 percent do not know why their applications were denied.
- Small business owners who understand their business credit scores are 41 percent more likely to be approved when they apply for a business loan.
- Those who understand their business credit profile are 31 percent more possibly to consider expanding their business.
- Still, 45 percent of small business owners do not know they have got a business credit score and 82 percent do not know how to interpret their score.
- It is difficult to believe that something as simple as regularly reviewing your business credit profile can improve the odds of a small business loan by as much as 41 percent, but it can. It is human nature to positively affect the things you pay the most attention to this’s true for your business credit. A monthly review of your business credit isn’t too frequent.
Separate business and personal credit use
Many small business owners use their personal credit to pay for business expenses. But it is just not a better idea and can negatively impact your personal credit score. Keeping your business and personal credit, expenses, and income separate is just a best practice to get into.
What is more, several businesses experienced trouble qualifying for a PPP loan because they did not. How does using personal credit for business purposes hurt your credit score? The high balances associated with business expenses on your personal credit card, for instance, pull your personal score down because part of your personal score is the ratio of available credit to the amount of credit you use.
This’s true even if you pay off the statement balance every month. Furthermore, using your personal credit to pay for business expenses does not do anything to help build a strong business credit profile.
Look for ways to establish business credit
It is probably that credit will be tight for the foreseeable future.
The tough facts include that lenders will be slow to re-enter the market as long as the financial health of small businesses is yet in question. What that means is business owners will want to look at ways to access borrowed capital that cannot normally be at the top of their list.
Trade credit is the best example. Though payment terms from your suppliers is not a small business loan, it’s credit that can help you build a strong profile. If your supplier reports your best credit history to the proper credit bureaus, it will help you demonstrate that you’re able to successfully use credit to build your business.
What is more, if your vendor provides a discount for their clients who pay their invoices early, even better. This tip alone is imperative to improve your business credit profile post-COVID-19.
Use only the credit you need and make payments according to agreed-upon terms
There will be a temptation to borrow as much as you can every time you can right now. Just remember, that there’re prices associated with borrowing regardless of where you borrow and whatever the interest rate can be. There are few reasons for borrowing i.e.
- To increase ROI
- To build value in your business
- To maintain viability
Being a small business owner, you should expect that your personal credit score will be part of any business creditworthiness decision.
It is one-way lenders have evaluated potential borrowers looking for PPP money today, it was part of each creditworthiness discussion in the pre-COVID-19 world, and will probably be part of any future business loan decisions.
Do not interpret that as a reason not to concentrate effort on building a strong business credit profile as well. Together, a best personal score and a strong business profile will open doors to small business financing opportunities that will not be unavailable to those who have a weak profile.
Need help building your business credit?
We at YMA Wealth Management hope this article helps you improve your business credit profile post-COVID-19. If you want a reputable company to start the heavy lifting for you, we’re here to assist you.
Give us a call today, we’re happy to help you!