Generally speaking, good credit empowers small business owners across the board. But there are select businesses or circumstances that make good credit even more important. If your business falls into any of these categories, you’ll want to take special care to monitor your business credit in 2017.
1. Businesses That Work With the U.S. Government
In recent years, the U.S. government has successfully met and exceeded its goal for contracts with small businesses, with 25.75% of prime contracts in 2015 being awarded to small businesses, according to the U.S. Small Business Administration. This is good news for many small businesses across the country. But those contracts will only be available to those that can successfully place a bid, which is where good credit comes in.
To do business with the U.S. government, your company must place a bid, and in many cases it will need a surety bond. Similar to the process of applying for business credit, applying for a surety bond will result in a credit inquiry. Blemishes like delinquencies, bankruptcies, and tax liens will mark your company as high risk, and might ultimately prevent you from getting the bond necessary to place your bid. In other words, poor credit could prevent your business from engaging in an otherwise lucrative contract.
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2. Businesses Struggling to Maintain Consistent Cash Flow
Maybe it’s your first year in business, maybe your business is significantly vulnerable to seasonality, or perhaps you’re unsure of how the new administration might affect your small business. These concerns are common across all industries, and having good credit is one way to quell, or at least mitigate, the risk associated with inconsistent cash flow.
If you need to access capital to accommodate first year expenses, make up for seasonal dry spells, or accommodate a change in consumer spending in the new year, good credit will make that much easier. Small businesses with good credit are more likely to reap the benefits of easier borrowing, lower APRs, and longer repayments terms, all of which can help ease an otherwise heavy burden.
3. Businesses Looking to Expand or Finance a Large Project
Perhaps in 2017 you plan to tackle the next big thing in your business plan. With that in mind, big projects might call for big budgets. And if your plans require you to take out a large sum of money, then good credit is a big key to your success.
Not only can good credit secure you better loan terms, but it can also increase the likelihood that you’ll be approved for the amount of money you need. Poor credit can result in higher interest rates and therefore can limit the amount of money a lender will agree to lend you.
How to Improve Your Business Credit Score
Knowing you need good credit is one thing, but it’s important to take the proper actions to get it, too. Improving your credit requires some diligence on your part. Here are three things you can do to help improve your business credit score.
- Monitor your credit. This should be considered a universal requirement regardless of your credit score. If you have poor credit, monitoring it will help you identify potential problems. If you have good credit, monitoring can help you quickly identify potential problems. For continual coverage, consider using a credit monitoring service.
- Make payments on time or early. Regularly paying your bills on time or early can have a significant impact over time, particularly when the creditor reports to business credit reporting agencies like Dun & Bradstreet, Experian, and Equifax.
- Establish a line of credit with suppliers and vendors. If possible, arrange to accept inventory, supplies, or services using vendor-supplied credit, and make sure those vendors report to the aforementioned credit reporting agencies.
As you approach the new year, analyze your business needs and how your credit score could help or hinder your future plans. Achieving and maintaining good business credit can be a cornerstone in the success of your small business.