I’m not a big proponent of incurring a lot of debt to fund or build your business. But even if you’re a small business owner that is completely committed to bootstrap-financing your venture, there will come a time when you’ll need more cash than you currently have to continue growing your business, or you won’t want to tie up all of your cash in the business. At times like that, you’ll need ready access to business credit.
One of the very first tasks you accomplished in Step 1 of Building a Better Business was obtaining a DUNS number from Dun & Bradstreet (D&B). D&B (along with Experian and BusinessCredit USA) provides business credit reporting information just as Equifax, Experian, and TransUnion provide credit info for individuals. But simply having a DUNS number is not enough to establish a credit file for your company. For that, you’ll need to have other companies that you do business with provide payment information to D&B and the other business credit reporting services on your behalf.
The most likely companies to do this are the companies from which you regularly purchase supplies and materials used in your business. In Step 13 of Building a Better Business, we discussed establishing payment terms with your suppliers, that is, paying them by invoice or installment.
Once you’ve established regular, on-time payment track records with the suppliers that offer you terms, approach them or someone in their Accounts Receivable or Collections department about providing positive payment information to D&B and the other credit reporting agencies. This information will be added to your credit file, and will result in a more favorable risk assessment when you apply for a loan or line of credit from a bank. Alternatively, you could ask for the same suppliers to provide a certified letter or statement denoting your good payment standing with their company, and include it with your loan or line of credit application.
Just like personal credit, it takes some time to establish good business credit, but only a few mistakes to mess it up. So once you identify which of your suppliers will report your payments to business credit reporting agencies, make sure you pay them on time.
Visit the links below for more information on building and maintaining your business credit:
- Factors D&B uses to calculate your Paydex score
- FAQ about D&B
- Business Credit USA’s site
- Entrepreneur.com article – The ABCs of Business Credit
- Smart Money article – 5 Things to Know about Small Business Plastic
- Experian’s business credit site
photo by Andres Rueda (Flickr)
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