Quick Ways to Build Business Credit

Building business credit can be quite a difficult task considering the strict lending practices that have become prevalent throughout the last few years. For most new businesses, having or not having enough capital within the first few years can make or break a business. How can a business with no credit history, little revenue, and minimal capital expect to build credit, when lenders are unwilling to provide. Fortunately there are a few ways to build credit quickly and easy, even starting from scratch. Let’s take a look.

A vendor line of credit is credit provided by a vendor that allows a business to receive a product now, while paying for it later. Vendor lines of credit are much easier to get than business credit cards and business loans. Most vendor lines of credit are not secured because collateral is not required to obtain the line of credit. These lines of credit are usually net 30 accounts, which simply means you must pay vendors’ invoices in-full within 30 days, balances do not carry over. Vendor lines of credit are absolutely essential for a business, without much credit history, looking to build business credit.

Buying credit on collateral simply implies using collateral for a quick loan that is quickly paid off within a few months’ timeframe. For example, if you expect your business will require a loan for $20,000 in the future, and you currently hold a similar amount of cash, you could first place the cash in a savings or similar account. Next, apply for a loan of the same amount using the account as collateral. You will have to pay a higher interest on the loan that what you will receive in interest on the account, but the cost should not be too great and you will simply pay off the loan within a few months. When you apply for future business loans, lenders see is a $20,000 paid business loan, which will substantially increase your chances of receiving business credit.

Opening credit cards is a popular and easy way to build business credit since they also tend to be easier to get than a business loan. Maintaining balances of business credit cards is an effective way to show your business is responsible enough handle business credit. Just be sure that your business is doing this properly as this can also hurt your credit. Make sure you do not open more than a few cards and do not use more than 30% of the available credit balances. Having multiple cards with large payable balances increases your business’ credit risk and will be perceived as being under financial stress.

Remember, in order to build a solid foundation for business credit, you should strive to obtain one bank loan, three business credit cards, and at least 4 vendor lines of credit.