For a business to be in the favor of different lenders and to obtain the necessary funding for its future capital needs, having a favorable credit score is very vital. But a good credit rating does not come in an instant, and for any business owner, there are certain steps to follow.  These steps will help improve a business’ credit rating as well as maintain a favorable reputation to lenders and investors.

1. Make sure that your business has a legal entity

Your business will not be able to build business credit if it does not have an entity unto itself. And thus, it is necessary for you to be incorporated or to form an LLC (Limited Liability Company). No lender will be willing to give a business loan to a sole proprietor because this might end up as a personal loan in disguise.

2. Find a Good Address, a Telephone Line, E-mail and Internet Service

Having a good physical location for your company adds credibility for lenders to believe that your company is legitimate when your office address is not your own home address. And having the right means for people to contact you such as owning a telephone line as well as an e-mail address and even a web site, is essential especially for faster communication.

3. Check Your Business Listings

Have your company enlisted under all the necessary agencies and make sure that all your listings are under the same exact legal name as well as with the same exact phone number and address. It is very important for all your personal creditors to have you listed under a uniform identity.

4. Obtain All Necessary Business Licenses, Permits, etc.

Obtain a business license for your company and, if applicable, a license for tax resale in the state, city or county location of your business. Follow all the necessary regulatory guidelines for running your business.

5. Organize Financial Statements and Tax Returns

Be ready to present at least two years of financial statements, with which the help of a CPA is highly recommended. And it is also very important, that your business at this time should already have its own tax ID number. Both federal and state business tax ID numbers should be enlisted under the same exact legal business name.

6. Secure Bank References

A minimum of one bank reference is necessary for your business to establish its score. And it would be advisable if your bank account were at least active for two years, with a good stable balance of at least $10,000 for the past three months for it to be in a favorable position for lending. How you manage cash flow in your business will be reflected from your banking.

7. Obtain At Least Five Trade References

Your business will need five trade references that have given you a credit account. This may include your suppliers or any firm in which your company has purchased goods, preferably at a regular basis. Make sure to choose references that will give a favorable credit history to agencies investigating on your financial history.

8. File for Credit Report Agencies

The importance of maintaining credit in a good standing must be known by every business owner. Through a sufficient credit line, a business is given more flexibility in acquiring the necessary funds it requires. As the business continuous to grow, a bigger credit line is necessary. There are two financing alternatives accessible that the business owner needs to consider – the small business credit cards and the unsecured business line of credit.

The Small Business Credit Cards

One of the two ways that can help the business obtain the financial resources it requires is through the small business credit cards; it is also one of the most common tools used in business financing. Small business credit cards can be ideal for new entrepreneurs since they are easier to obtain and some even offer flexible options for a business. Additionally, there are suppliers that accept payments through the use of small business credit cards. This would enable small business to be at par with other business and maintain the stocks with the materials needed for its production

However, small business credit cards also have disadvantages. Such cons may exist in the requirement of guaranteeing the card by newly formed businesses. This is a common requirement for some credit card companies. And so, the credit card will appear on the company owners’ personal reports on credit.

As you review your business credit card, you should ask the credit card company if this will be reported under the business name or your name personally. However, there are several issuers that are open to putting it in the business name only if the owner has a good personal credit.

The Unsecured Line of Credit

For larger expenses, the unsecured line of credit is a more appropriate financial resource. The unsecured line of credit can also offer the same flexibility of a small business credit card but with a lower interest rate and a relatively bigger credit limit.

There are several creditors who offer secured line of credit but with lower interest rates. You would also need to use some kind of collateral as a protection against your debts. Through the use of an unsecured line of credit, the possibilities in relation with tolerating your assets to be utilized for security are shunned.

As compared to the application for a business loan, acquiring an unsecured line of credit is easier. On the other hand, in order for the unsecured line of credit to be approved, the company is still required to be able to present an excellent status in their business credit.

Maintaining and Building a Business Credit

If you are looking for a method to fund your business, it is important to consider if you will qualify for an unsecured line of credit. However, the business credit score should be reviewed and must be enough to acquire such credit. Fortunately, it is never too late to improve your score and doing the correct actions early, such as opening a business credit card account in the business name only would help you to see improvements on your score.

Building a good business credit is always emphasized whenever applying for a business funding. From the time you launch your business, it is important to make it your goal to establish your business credit and keep it in a good standing.

When the time comes that you will need financing, you will easily qualify for an unsecured line of credit.