The 10 Commandments of Business Credit

The 10 Commandments of Business Credit

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Business credit may seem complex to learn and difficult to master, but gaining a solid understanding of just the basics will give you a leg up in all your entrepreneurial adventures to come.

Let’s take a look at 10 of these basics and briefly discuss the role of each in your business’s success.

1. Thou Shalt Build Your Business Credit Score

Business financing facilitates cash flow, promotes growth and prepares you for both opportunities and setbacks.

One of the keys to great financing is found in your credit scores. Most of us are aware of the importance of our personal credit scores, but our business credit scores can be every bit as important.

Start building your business credit scores by establishing accounts. Try starting with a business credit or charge card, or a trade line with one of your vendors.

2. Thou Shalt Know Your Business Credit Score

To build your business credit score, you’ve got to know what it is. But according to a survey by Manta, nearly three in four business owners haven’t got a clue.

Thanks to the internet, obtaining that knowledge is easier than ever before. Business credit report providers like Experian and Dun & Bradstreet offer individual reports and scores starting at $39.95. My company, Nav, offers summary reports from both providers for free.

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3. Thou Shalt Monitor Your Credit

Once you know your business credit scores, keep your eye on them. Sometimes harmful changes are your fault (see #7 below), but sometimes they’re due to misreporting, or, worse yet, identity theft.

Nip the latter in the bud by contacting the company that reported the information, as well as the reporting bureaus.

4. Thou Shalt Use a Business Credit Card Instead of a Personal Credit Card

Keep your business and personal finances separate. Confusing the two creates enormous headaches come tax time, and if your business struggles you don’t want your personal credit to take the hit.

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There can also be a credit advantage to using a business card versus a personal one. Most don’t report information to the owner’s personal credit reports unless they default. That means you can protect your personal credit from the activity of your business.

5. Thou Shalt Get SBA-Worthy

A U.S. Small Business Administration loan is the holy grail of loans, because if you qualify for one it’s probably the cheapest financing you’ll get. Whether you need the loan or not, find out if you qualify for it.

This will set you up for multiple sources of financing down the road, because once you get yourself into shape for an SBA loan, other doors will open as well.

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6. Thou Shalt Not Abuse Your Trade Creditors

Don’t abuse your business partners. You may think that paying your credit card or loan payment on time is more critical, and that it won’t hurt you to shaft your suppliers once or twice, but this is wrong.

If trust between you and your suppliers dries up, you’re screwed. Plus, many suppliers report to the credit bureaus, so your scores take a hit there as well.

7. Thou Shalt Pay All Your Bills on Time

This one’s a no-brainer, but sometimes the no-brainers are the ones we let slip off our radar while we’re focused on something else.

Prioritize the timely payment of your debts above all else, because this is the factor that influences your credit score the most.

8. Thou Shalt Avoid Borrowing Money From Friends & Family — If You Can

Borrow professional money if you can, and not amateur money from your friends and family or from people foolish enough to risk money on an unproven venture.

Always take the position that your relationships are more important than your business. If you have no other choice but to seek financing from a loved one, treat it as seriously as you would any other loan, and seek advice from others who have been in your place.

9. Thou Shalt Choose Lenders That Report to the Bureaus

In business as in life, sometimes you don’t get the credit you deserve. To make sure this isn’t happening to your business, do business with lenders and vendors that report to the commercial credit bureaus.

Do this with each and every creditor, as every positive account helps. Your motivation to stay on top of them will increase as you watch your scores creep up.

10. Thou Shalt Check the Credit of Your Own Customers & Suppliers at Least Once a Year

Knowing the credit scores of your customers and suppliers will help you ensure that they’re not becoming a risk to your business. You can’t know what’s going on behind the scenes until you look.

Avoid digging your own grave with new clients — make sure you’re working with dependable customers by looking at their business credit reports to see how they’ve dealt with their business partners in the past.

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About the Author — Levi King is co-founder and CEO of Nav, a free way for business owners to manage their entire credit and financial life. King is a six-time entrepreneur who has started successful businesses in the manufacturing, hospitality, retail financial services, and franchising spaces. He has accessed financing more than 30 times and founded Nav to provide small-business owners with a resource to help ease the process.

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