Over the past 25+ years, I’ve had the privilege of helping hundreds of businesses secure the capital they need to grow. I’ve held roles at a regional bank in branch management and small business lending, worked at an international bank managing small business sales and commercial underwriting, and served as an executive in small business and commercial lending at a community bank. Throughout my banking career, I’ve witnessed the incredible impact that securing funding can have on a small business. However, I’ve also seen the other side—many businesses don’t get the funding they need.
For a variety of reasons, loan applications can fall short, leaving businesses struggling. This is why, a decade ago, I made the decision to leave the banking world and start a commercial loan brokering business. As a broker, I can offer businesses access to more lenders, more capital, and a wider range of loan products. Regardless of whether I’m working as a banker or broker, one constant remains: a strong credit score significantly improves your chances of securing the capital you need.
With that in mind, I’ve compiled a list of strategies that can help you improve your business credit score, and ultimately, your ability to secure funding.
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Understand Your Business Credit Score
Your business credit score is a key factor in a lender’s decision-making process. Start by obtaining your credit reports from major business credit bureaus, such as Dun & Bradstreet, Experian Business, and Equifax Business. Once you have your reports:
- Review for Errors: Inaccuracies or outdated information can hurt your score, so be sure to dispute any errors you find with the appropriate bureau.
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Pay Your Bills on Time
Consistently making payments on time is one of the most important factors in maintaining a healthy credit score.
- Automate Payments: Set up automatic payments or reminders for your bills to avoid missing deadlines, ensuring your business bills, loans, and vendor invoices are always paid promptly.
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Manage Your Credit Utilization
Credit utilization refers to the amount of credit you use compared to your total available credit.
- Keep It Low: Aim to use less than 30% of your credit limit to maintain a strong credit profile. If possible, negotiate higher credit limits to lower your utilization ratio.
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Build a Positive Payment History
Your payment history is a critical component of your credit score.
- Consistent Payments: Pay bills consistently and on time to establish a history of reliable payments, which will boost your score over time.
- Negotiate Terms: If necessary, work with vendors to establish favorable payment terms that allow you to build a strong credit history.
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Maintain a Healthy Credit Mix
Lenders look favorably on businesses that can manage different types of credit.
- Diversify: Use a mix of credit, such as credit cards, loans, and lines of credit, to demonstrate that your business can handle various forms of credit responsibly.
- Avoid Overleveraging: While multiple credit accounts can help, it’s essential not to take on too much debt at once.
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Monitor and Manage Your Debt Levels
Keeping your debt manageable is vital to improving your credit score.
- Reduce Debt: Focus on paying down existing debt to improve your credit profile. Excessive debt can hinder your ability to secure new financing.
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Establish and Maintain Credit Relationships
Strong relationships with vendors and creditors can positively impact your credit score.
- Build Trade Credit: Establish relationships with suppliers that report to business credit bureaus and ensure you pay them on time.
- Maintain Older Accounts: Keep older accounts open and active, as the length of your credit history contributes to your overall credit score.
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Incorporate Your Business
Incorporating your business can help separate your personal and business credit.
- Choose a Legal Structure: Whether you choose an LLC or a corporation, creating a distinct legal entity will help build a separate credit profile for your business, improving your overall creditworthiness.
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Secure Credit Monitoring and Alerts
Monitoring your credit helps you stay on top of any changes and address potential issues before they become bigger problems.
- Set Up Alerts: Many credit monitoring services allow you to receive alerts when significant changes occur, helping you stay informed and act quickly.
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Address Negative Information Promptly
If your credit report contains negative information, it’s crucial to address it quickly.
- Resolve Issues: Work to resolve any past-due payments or collections as soon as possible and consider negotiating settlements or payment plans with creditors.
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Seek Professional Advice
Improving your credit score can be complex, and seeking professional advice can make the process easier.
- Consult with Experts: If you’re unsure of how to improve your business credit, consider consulting with a credit counselor or financial advisor who specializes in business credit.
By following these strategies, you can improve your business credit score and enhance your ability to secure financing. Whether you’re working with a traditional lender or a broker, a strong credit profile is key to unlocking the capital your business needs to thrive.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
