Building Business Credit
Establishing a sound credit history for your business can support the expansion of your enterprise in the coming years. To do this, you need to: build good business credit, keep personal finances separate and to choose financing carefully. Following a defined debt-management strategy is also essential for managing debt and building a stable credit history.
1. Operate Under a Separate Entity
Using an entity such as the company structure separates your personal finances from that of the business. This allows the organisation to operate from a ‘clean slate’ and on an independent basis from your personal finances. Use your company name and accounts for everything related to the business, including applying for loans. Operating under a separate entity has the added advantage of protecting your personal finances from exposure to business risk.
2. Carefully Choose Business Financing
Find the right financing option for your business. Any financing that’s obtained should closely match the requirements and capacity of your business. Consider repayment requirements, loan amount, interest and fees and charges, and ensure that these reflect the goals of the business for the loan term. As a business owner, you should find the best possible terms and conditions for their loans. Seek advice from your accountant if you are not sure whether your business can afford a particular loan.
3. View Your Credit as a Business Asset
Treat your business credit history as an asset that must be actively managed, maintained and protected. Prioritise repayments and loan minimisation for any business financing that is taken out. Consider the fact that credit history can be essential many things, including qualifying for good financing in the future and attracting investors or buyers for your business.
4. Have a Strategy for Debt Management
A debt-management strategy clarifies your goals for repaying debt and how debt can be used responsibly and judiciously in business growth and expansion. Debt-management strategies can include the following elements:
- Repayments – A plan for making timely repayments and repaying the principal in the agreed period. Tools such as automated deductions from your account can make it easier to prioritise timely repayments.
- Expenses – The strategy should incorporate smart spending choices that cover how the debt will be used in a cost-effective way for the organisation.
- Budgeting – Watch your expenses by having an effective budgeting process. All businesses are required to keep records, but owners and managers should make time to review the budget to guide wiser spending and saving decisions.
- High-interest debt – A debt-management strategy might include a plan to eliminate higher-interest debt first, so that the most expensive loans are paid off first.
Over time, good debt management reflects well on your company through the business’s balance sheets and other financial records.
5. Check Your Credit Health
Running a business can be time consuming and it can be easy to lose sight of important factors such as the credit health of your business. As such, follow a timetable for checking your credit health on a regular basis, so that you can review and adjust your debt-management plan as is necessary for the changing circumstances of your business.