subject: Building Corporate Credit Quickly- The Steps [print this page] Any entrepreneur hopes to borrow funds from the bank or other financial institutions to partly finance the business venture they are getting into. While this is a great way to get some much needed funds into the business, banks are chary of lending to new ventures. This is because as a new entity, the venture does not have a credit history, and a majority of small businesses fail within the first five years. The way out for most new businesses is to focus on building corporate credit as soon as possible.
Work On Essentials
For building business credit, the first essential is that the business should have its own identity - a registration number, a license, a phone number and so on. This will assure all potential lenders that the entrepreneur takes the business seriously and means to stay for the long run. Once this is done, ask small suppliers and vendors to extend credit for low amounts of money. Pay these back on time and request the vendors to report this payment behavior to the credit rating agencies.
Understand the System
One can also use business credit cards for making purchases of office supplies and gas. Again, the key to getting a good credit rating is the same as for personal credit cards - pay the full amount due on time each month. Credit rating agencies will take this into account and raise the credit rating for your business soon. This will help you in building corporate credit quickly.
Use Professional Services
Business credit builders will also advice you to incorporate your business. By giving a proper business structure to your venture, you will soon qualify for better loan terms. Moreover, you will no longer be held personally responsible for the debts of the company in case your venture fails.
Banks are much more ready to release small business loans, if your business has some collateral to offer. This reduces the risk to the bank, and so the interest rates will also be lower. Any asset of the business such as machinery or land can be pledged with the bank to obtain funds for day to day operations. Also, a good business plan that clearly shows why your business is bound to succeed will impress bankers sufficiently to make them consider lending to you. Of course, your request for loan should also explain why you need the money and how you plan to repay the loan and interest.
Many business credit services help a business reduce the time taken to get a good credit rating from the rating agencies. They do this by ensuring that your business complies with all the criteria set by banks and credit rating agencies for approving loans.
Be Proactive
It is a mistake to approach banks after your business is in a cash jam. The best time to establish credit lines is when your cash flow is good. By borrowing small sums and paying them back on time, you will gradually build up the bank's trust and establish credit lines for later. Once the banks are convinced of your capacity and commitment to repayment, they will be more than willing to lend your bigger sums for expansion and diversification. The key is to work on building corporate credit when the going is good.
