Duane Roberts 
If you’re launching a business, your credit score may not be high enough to qualify for the loan or line of credit you need. Even if you’ve been building your personal credit responsibly, it may not be enough to meet lenders’ standards. The good news is that businesses have their own version of credit, and there are ways to build your company’s credibility with lenders. This article will detail how a company’s credit rating works and what steps you can take to build the credibility of your business when applying for loans from banks or other financial institutions. With the right plan in place, you can put your business in the best position to get financing when you need it most.
What is Company Credit?
When you apply for a loan, the lender will use the company’s past and current financial data to determine your business’s credit rating and likelihood of repayment. The company’s credit rating is determined by two factors: the level of risk and the amount of interest charged. A poor credit rating will affect your business’s ability to obtain financing, as most banks won’t give loans to companies with poor credit. Company credit is a type of commercial credit, which is extended by commercial lenders, like banks and credit unions, to businesses. It’s also known as commercial liability. When a business applies for a commercial loan, lenders will consider its commercial credit rating, which is similar to a FICO score for individuals. Companies with good commercial credit ratings are more likely to receive financing from banks and other commercial lenders.
Strategies to Build Business Credit
A company’s credit history begins with its formation, but you can start building credit as soon as you file your company’s articles of incorporation. Registration of your company with the state government may be required for your business to have access to utilities and telecom services.
- Obtain an Employer Identification Number (EIN)
- Register for a federal tax ID number
- Open a business bank account
- Create a written business plan
- Obtain letters of intent from potential suppliers and customers
- Obtain a commercial credit report
- Arrange financing with existing lenders
- Trade on open purchase orders
- Apply for a commercial loan
- Hire a credit consultant
- Report significant business developments
- Use a commercial credit repair service
When you need financing, it’s important to understand your company’s credit rating and its impact on your ability to obtain financing. You can get ideas at The Business Cowboy to know how you can take advantage of a business credit. A strong commercial credit score will help your company obtain financing at a low interest rate and with a shorter repayment term. If you need help building your company’s credit, talk to an accountant or financial advisor, who can help you create a credit enhancement plan. While you can’t boost your commercial credit rating directly, there are ways to demonstrate your ability to repay loans and improve your commercial credit rating over time.