Just as a good personal credit score is essential to get a personal loan, car loan or home loan, sound business credit history is vital if you are ever in the market looking for a business loan. Your personal credit score while is helpful when you want to apply for a loan for business, it is not enough.
So, how can you build a good business credit standing? Here are seven simple yet effective ways to do so. Take a look:
Register your business
The first step is to get your business registered. This will help you make your business legal. Incorporating a business will help create an entity that is separate from the business owner and his personal finances.
Create a presence
Ensure your business exists. You can do so by creating a website that details the services, address of the registered office, and how customers can contact you. This means you will also have to get a business phone number and email id. This will help build trust among your associates and customers.
Open a business bank account
Your personal bank account should not be used for business purposes. You will need to open a current account for all business transactions. It is critical to keep this separate from your personal savings account.
Get a business credit card
Getting a business credit card that is linked to the business bank account is a great way to build business credit. Since banks report to credit reporting agencies, it will directly help your business when you need to seek a business loan. Ensure you pay your credit card bills only from your business bank account.
Get a business PAN card
A Permanent Account Number (PAN) for your business is compulsory to file taxes. It helps identify all the financial transactions and tax flow of your business. A PAN is also needed for the payment of your invoices, remittance, getting a loan for business, and any other documentation.
Pay your bills on time
Always ensure you settle your business credit cards dues on time as it can directly impact your credit score. Pay the bills in full and not just the minimum amount due. Not to forget, you will end up paying very high interest rates if you miss payments or do not pay in full. Also pay off your vendors, banks and other lenders on time.
Build a good relationship with vendors
A healthy line of credit is a great asset for any business. This essentially means you don’t have to pay vendors and suppliers upfront and can seek a 30-day credit period. Not only will it help your cash flow, but it will also help build good credit standing if your vendors report to credit agencies. Of course, ensure you pay them on time.
A good credit standing will ensure your business enjoys a decent reputation in the market. More importantly, it will ensure you get to leverage all the financial tools available for businesses.
Whether you want to revamp your business, expand into new markets or buy more machinery, Tata Capital provides customised business loans to suit your plans. Getting a loan is quick and hassle-free, with flexible repayment options. Check your business loan eligibility and take your business to newer heights.