Over the years, we have observed that small business owners without a credit profile are unable to obtain credit, preventing them from improving and growing their businesses.
Those with a positive credit record manage to secure the necessary financing for the development of their business. However, it is not something that is easily achievable, as it requires employing certain strategies and being responsible with their credit to build trust.
What is a credit profile?
A credit profile is a score or assessment made by various credit institutions based on information provided by one’s behaviors when using financing.
A positive score means that a user has generated trust and credibility among creditors, making the person or company a good candidate for credit approval.
Why is it important for your SME to have a credit profile?
A good credit history allows your company to obtain the necessary funds to purchase assets, inventory, or finance activities and expand operations.
A credit profile can also generate new business opportunities. Your credit history will be evaluated when you want to negotiate a contract or partner with a potential investor.
On the other hand, financial companies need to know if you can make payments on time. That is why they check your history and credit score with the credit bureau.
Basically, these scores help determine if you are eligible for financing.
Tips to boost your credit profile
There are some practices that you can follow so that your SME can obtain the desired credit profile:
Establish a line of credit with your suppliers
In business, it helps to have a stable line of credit with key suppliers. Many suppliers offer this type of arrangement, meaning you can pay for your stock within days or weeks of receiving it.
Establishing lines of credit with vendors who report your payments and how you make them to credit bureaus or institutions can help you build a strong credit profile.
However, these providers are not required to report their payments to the agencies, so you may need to ask them to report. Alternatively, you can open an account with those who submit the information.
Separate your personal expenses from your business expenses
First, ensure that your business obtains the legal status of a corporation or company.
A business credit profile cannot be built solely on a personal credit score. It is also very important that you never use the company account for personal expenses. It is not a good idea to use your business account for personal expenses like rent or insurance. These practices can make obtaining credit or business financing difficult, especially if your credit score is under 550. While there are options for obtaining loans for credit under 550, it is crucial that you treat your business as a separate entity and learn to set boundaries. Separating business expenses from personal expenses is not only desirable but absolutely and fiscally necessary.
Find visibility for your business
You can only effectively have a credit profile once you have established your business. We must ensure that our company name, address, and email are up to date. Whether your business is a partnership or sole proprietorship, you must be registered with the tax authorities and have at least 3 years of commercial history, among others, to have a good credit standing.
Check your credit report frequently
Many SME owners report significant errors on their credit reports. Reading your credit report carefully can help you spot any problems or inaccuracies. If you find an error, you must file a dispute with the appropriate authority. Either way, keep in mind that if you stop paying taxes, get sued, or file for bankruptcy, all of this data will go directly to your report, negatively impacting your credit profile.
Be punctual with payments
By paying your bills on time, you prove that your business is trustworthy and that you can manage your debts effectively. If you don’t make payments, your creditor will send a negative report to the credit bureaus. A record of default or late payments will hurt your chances of getting a loan and irreparably damage your credibility with other businesses and consumers.
Business money in the bank account
Even if you trade in cash, revenue must be deposited into your business bank account. There is no other way for you to show how big your business is or that it is growing. Once you put this into practice, you will be able to better monitor and manage cash flow. There’s nothing like having a clear picture of where your business is headed.
Conclusion
A good credit profile for your business will allow you to access financial products such as pure business leases and credits. It can even help you attract new clients by confirming your creditworthiness and validating your credibility.