To start, run, and grow your own small business, you’ll need more than just hard work and dedication on your side. You’ll also need sufficient financial resources to be able to thrive in the industry you’re in. Having enough funds ensures that you can support your daily operations and comfortably explore various business opportunities and investments at your own pace.
There are various ways that you can secure the funding you need, one of which is getting a business loan. Loan programs like that of the Philippines’ Maya Flexi Loan, for example, are specifically designed to help entrepreneurs cover all kinds of business expenses, such as expansion, equipment purchases, and inventory. The terms and conditions of these business loans can vary widely depending on the lender’s policies, but if you want to access the most affordable loans, one generally accepted truth is that you’ll need a good credit profile.
Businesses with good credit profiles are often seen as trustworthy by lenders, which makes the latter more confident about extending credit. If you want better prospects for business funding, here are some tips for strengthening your small business’s credit profile in time for your next loan applications:
1) Establish a Separate Business Entity
One fundamental step for bolstering your small business’s credit profile is to establish a separate legal entity for your company. Separating your personal and business finances not only protects your personal assets, but lays the groundwork for building a distinct credit history for your business as well.
Moreover, it creates a legal barrier between your personal assets and those of your business which, in the eyes of lenders and creditors, enhances your reputation for credibility and stability. That said, don’t be remiss in registering your business as a separate entity if you want to make your credit profile attractive enough for future financing and investment opportunities.
2) Open a Business Bank Account
You may have needed to combine your personal and business finances at some point, but the bigger your business grows, the harder it will eventually be to track your expenses, monitor your cash flow, and report a full picture of your financial health to external parties.
As soon as you possibly can, open a dedicated business bank account to create a clear distinction between your personal and business transactions. This will make it easier to manage your finances and maintain accurate financial records. Apart from this, having a business bank account also demonstrates financial stability and professionalism to lenders, creditors, and potential partners.
When choosing a business bank account product for your company, look for a financial institution that offers features and services that properly align with your business needs. Consider factors such as account fees, transaction limits, online banking capabilities, and access to credit products tailored to small businesses before signing up for an account. In addition, inquire about any special offers or benefits available for new business account holders, such as waived fees or introductory interest rates.
Expand your search for a business deposit account to include fully digital business banks. Doing so may help you access exclusive services or perks for small- and medium-sized enterprises (SMEs) that aren’t as readily available from traditional banking institutions.
3) Build a Strong Credit History
Just as your personal credit history influences your ability to secure loans and credit cards, your business’s credit history plays a crucial role in determining its creditworthiness in the eyes of lenders and creditors. A history of responsible credit use demonstrates your business’s ability to capably manage debt and meet its financial obligations, which will positively affect your credit profile.
To build a strong credit history for your business, start by establishing credit accounts specifically in the name of your company. This may include business credit cards, lines of credit, and trade accounts with suppliers who report payment history to business credit bureaus.
Make timely payments on all credit accounts and strive to maintain a low credit utilization ratio. Furthermore, regularly monitor your business credit to properly identify any errors or discrepancies that may impact your credit standing. Building a strong credit history requires time, discipline, and consistency, but the long-term benefits for your business’s financial health and stability are well worth the effort.
4) Be Wise in Your Efforts to Apply for Credit
Each time you apply for credit, it can place a hard inquiry on your credit report and, as a consequence, temporarily lower your credit score. It’s important for you to be selective and deliberate when applying for new credit accounts. Before submitting a credit application, carefully evaluate your business’s financial needs and creditworthiness. Consider factors such as the purpose of the credit, the amount of credit needed, and your ability to repay the debt responsibly. Research different lenders and credit products to find the ones that best fit your business’s requirements and financial situation.
Avoid submitting multiple credit applications within a short period, as this can raise red flags with lenders and may indicate financial distress on your part. Instead, focus on applying for credit only when necessary and when you’re confident of approval based on your business’s credit profile and financial standing. With this approach, you’ll be able to maximize your chances of securing favorable financing terms and positioning your business for long-term financial success.
5) Pay Your Bills on Time
Whether they pertain to rent, utilities, supplier invoices, or loan payments, it’s crucial to prioritize timely payments for all of your business’s financial obligations. Late payments not only incur penalties and fees but also negatively impact your business’s credit score and reputation. Even a single late payment can have lasting consequences on your credit profile, making it more challenging to secure favorable financing terms in the future.
To ensure timely payments, establish effective systems and processes for managing your business’s finances. Set up reminders for payment due dates, automate recurring payments where possible, and maintain sufficient cash reserves to cover your upcoming expenses. You can also negotiate payment terms with suppliers and vendors to align your payment schedules with your cash flow cycle and avoid unnecessary strain on your finances.
You May Also Like:
