Get the Soil Right
In order to build business credit you need… (drum roll)… you guessed it – a business! Think of this process like growing a community garden. The first priority is to do the groundwork.
The foundation of your company will affect the quality of financial leverage it can access. Whether it’s a commercial loan or the coveted – and very convenient – business line of credit (BLOC), you want to be positioned to have options.
Entity structure and business planning must be done well. No shortcuts.
Gather Your Seeds
Business Checking Account
The most important account is your business banking account. Stay away from banks that have engaged in racial discrimination practices in the past. Check out this list of lenders to avoid.
To open your business account you will need:
- Formation documents of your legal entity
- Relevant permit or license if required.
- Employer Identification Number (EIN)
Sprout Your Credit Accounts
Kick-start The Business Credit Profile
Register for a D-U-N-S Number: Dun & Bradstreet (DnB) is a credit reporting agency that holds over 330 million records of businesses around the globe.
Open Vendor Credit Accounts: These are typically referred to as Net 30 accounts. This means that a vendor allows you to make a purchase and have 30 days to pay the invoice. If it was a Net 90 account you would have a due date 90 days out etc.
These types of accounts often report to Dun & Brad Street but not always. Simply ask the vendor which agency they use to report credit activity.
💡 Tip: Try to open 3-5 relevant accounts and pay as soon as you receive the invoices. Early payments help to give you a higher credit rating. Your company will benefit once DnB has enough data to formulate a D&B PAYDEX®. We recommend Nav for business credit monitoring and finance solutions.
Water Your Credit Profile
Apply for a Business Credit Card
Once your vendor accounts begin reporting it is time to open a business credit card. Hopefully your financial institution offers these services. Look for terms and rewards that are a good fit for your type of business.
Abide by the same best practices used to optimize personal credit. Never exceed 30 percent utilization and pay on time. In addition, make sure that you are only using the business credit card for business related expenses. It is critical to maintain the corporate veil of the legal entity.
Do Not Over Water!
Only open the accounts that you need. 2-3 should suffice in most cases.
Patience and Consistency
We do everything we can to expedite positive outcomes for our clients. However, one of the essential ingredients to building credit cannot be supplemented. Time. Check all the boxes, do all the right things, and then you wait.
Just like watching a tree grow – you just have to wait. It may be 6 months, a year, or longer but if you are diligent it will definitely be worth it. As you play the credit game here’s where your focus should be:
- Execute quarterly milestones laid out in your business plan
- Tighten up marketing efforts and curb expenses
- Create one or two streams of ancillary income
- Monitor the market for opportunities or disruptions
- Get business credit monitoring to track progress
Good business habits will serve you well once you gain access to flexible lines of business credit. Follow a well crafted plan. Consider the following:
- Keep cash in the business and leverage credit to increase revenue.
- Extinguish debt with profits and add the remainder to cash accounts.
- As cash reserves should be at least 25% of BLOC deployed.
Enjoy the Fruits of Success
After a few years of deploying these tactics we hope you’re spending your time doing the things you love. Launch other ventures, work on passion projects, and reinvest into social justice and environmental causes.
There are so many cycles in life. Celurius hopes to serve you in your season of cultivation, harvest, and help you thrive and establish your legacy for the next generation. Head over to our resource page for a list of quality vendors to assist you on your journey.