Corporate credit is essential in helping your business qualify for favorable financing terms from lenders and creditors; fortunately, you can build it.

Every business needs finances to run its operations smoothly. Nevertheless, sometimes entrepreneurs run out of liquid cash to tackle daily expenses. The best way to keep things running is to look for a reliable source of funds where you can access cash.

Corporate credit provides you with an emergency fund during declining cash flow in your business. However, most lending firms have to establish that you can repay the money you borrow before giving you any financial assistance.

Therefore, it is important to build corporate credit to allow you access to a loan during critical times in your business. Scroll through the article to discover ways in which you can successfully build corporate credit.

Benefits of Corporate Credit

  • It helps you track company expenses when making purchases using checks, credit, and debit cards.
  • Corporate credit allows you to make purchases at a low-interest rate.
  • It improves your business credit rating with lending institutions.
  • Improve your business cash flow.

Ways to Build Corporate Credit

Regardless of your business’s nature, you can improve your corporate credit in the following ways:

1. Register your Business

Most lending institutions are willing to provide financial assistance to businesses legally registered with the local government. Registration paperwork is the first thing investors request to see to verify your business.

Registering your business allows you to build corporate credit over time and sell shares to raise equity capital. You only need to research to learn the process of starting a limited liability company based on your state’s legal requirements to benefit from equity shares.

Additionally, you can attract funding from banks and other financial institutions to facilitate your company’s growth with a registered business. Interestingly, investors prefer registered businesses because they have a formal structure. Registered companies also have clear goals that inspire confidence for return on investment, providing investors and lenders with incentives to extend further credit to your business.  

2. Always Pay your Bills on Time

Another effective way to build your corporate credit is by paying your bills on time since it allows you to create a good credit record and boost your credit score. A higher credit score because of early payment of your debts assures creditors and lenders that you can handle your financial obligation promptly.

A good credit report and a higher credit score will enable you to qualify for financial funding at a lower interest rate. If you habitually pay late, your lender will notify credit bureaus that you are high risk, which will negatively affect your credit score. Furthermore, late credit payments will attract penalties; therefore, ensure you keep track of your debt dates so that you do not ruin your stellar record.

If you own several business credit cards, synchronize them to track their due date; otherwise, you may realize several months later that the credit has not been paid! The interest and the penalties will accumulate, thus affecting your corporate credit.

3. Accept Credit Card Payments

During the Covid-19 pandemic, most consumers refrained from using cash in payments to help curb the spread of the virus. Despite the decrease of the virus in most countries worldwide, consumers have adopted the use of credit cards as the primary mode of transaction.

Unfortunately, if your business does not accept credit card payments, you risk losing sales and the chance to build your corporate credit. Some of the benefits you derive from accepting credit card payments in your business include: –

  • Establishing your business as legitimate in the industry
  • Attracting more customers to your business and boosting sales
  • Improving your business cash flow      
  • Eliminating the risk of getting bad checks

Accepting credit card payment enables you to compete in the market favorably since most businesses are okay with it. It also allows you to use credit and build your credit utilization ratio, which will improve your credit score.

4. Open a Business Checking Account

Instead of using a personal checking account for your business transactions, opening a business checking account will facilitate your business growth and build corporate credit. The account will help you keep your business records organized and make it easier to determine your venture’s profitability.

The business account will help you file taxes and deductions accurately since you will not mix business expenses with not personal expenses. A business checking account allows your staff to sign in and perform administrative banking duties while you focus your time on other income-generating activities.

Moreover, the checking account helps you gain lending institutions’ trust because you look more professional.

5. Establish Credit with Reporting Vendors

Good vendors can help you build corporate credit when reporting your payment history to national credit bureaus. Why not aim to work with credit vendors known for reporting payment data to the bureau by researching their procedures before committing to work with them.

These vendors will allow you to take goods from their stores on credit and pay later. The credit duration is valuable in helping you demonstrate your creditworthiness, which will reflect in your credit report. Once you pay the vendor on the agreed date or earlier, they often make a report on the payments, thus, allowing you to build a strong credit history and maintain a good relationship with your suppliers.

6. Open a Business Line of Credit

A business line of credit will give you access to money during uneven cash flow at flexible repayment terms. The beauty of a business line of credit is you do not require to pay lump-sum disbursement during account opening or regular monthly deposits.

Your business line is subject to credit review and annual renewals with the lender, limiting the amount you can borrow. Once you withdraw funds from your business line, interest accumulates, and you can borrow a loan again from the amount you pay to refinance the credit.

Since no collateral is needed to acquire a loan with the business line of credit, most lenders attach a variable interest rate to cater to the unsecured debt. The good thing is that they offer better attractive rates than the business credit card.

With lots of uncertainty in the business world, you never know when you might require financing. Therefore, keep your line of credit in good standing to build corporate credit and qualify you for better loan terms in the future.

7. Keep an Eye on Your Credit

Regularly checking your credit is an excellent way to build corporate credit. It helps you verify that the information with the national credit bureaus is accurate and up-to-date. If you discover any discrepancies on your credit report, promptly file a dispute with the credit agencies reporting the error.

Monitoring your business credit will help you keep track of your progress and maintain a positive credit score. A good credit score will allow you to qualify for financing and save you from using your finances during uneven cash flow.

You can verify your credit report and scores with various credit reporting bureaus to establish if your accounts are helping your scores; otherwise, find ways to improve the lagging accounts.

8. Get an Employer Identification Number

An employer identification number demonstrates that you are an established business and is essential to building corporate credit. The employer identification number acts as a social security number for your business and is required when changing your business to a corporation.

Before funding your business, most lending institutions ask for your employer identification number and include this information in your credit report. Consequently, ensure to service your loan on time to boost your credit score and qualify for favorable interest rates from suppliers.

Employer identification number also helps you separate your business finances from your cash. Moreover, it saves you time and money as bookkeeping and accounting become much simpler to perform. Other benefits of an employer identification number include: –

  • Speeding up business loan application
  • Helps you with opening a business bank account
  • It prevents identity theft
  • It helps you when filing business taxes to avoid penalties
  • Vendors are likely to trust you

Final Thoughts

Building corporate credit for your business will not happen overnight. You will need patience, discipline, and consistent learning to manage it effectively. Your focus should be on maintaining a positive credit report and score.

This article highlights eight ways you can adopt to build corporate credit. Since it is impossible to implement all of them simultaneously, you can begin with one that works well for your business and progressively introduce others over time.

Before you request financing from lending institutions, calculate the cost associated with the loan, including Interest rates, and establish if you can pay on time to avoid penalties.

Your efforts to build corporate credit will help you qualify for financing at favorable interest rates from suppliers, facilitating the growth of your business.

Which of the above methods for building corporate credit have you tried in your business, and are there others we have not included in the article?