The Art of Good Business Credit

A lot of small business owners focus so much on maintaining a good personal credit score that they often forget about the importance of having a good business credit. Yes, having good credit personally can help get your business off the ground, but you want to start building credit for your business as soon as you start up. We’ll explain some of the benefits and 5 easy ways to starting building business credit today.


 

Capitalize on opportunities

 

The world is changing faster than ever - and opportunity is everywhere. When the right opportunity presents itself to you, be ready. It could be a competitor or supplier calling you, suddenly needing to sell their business. It could be a new technology with capabilities to scale your business. It could be a new office building or some other exciting investment opportunity - whatever it is, having access to capital allows you to capitalize on opportunities. Don’t be caught with a bad credit score when your big chance presents itself.

 

Improve cash flow

 

You have bill payment deadlines looming, but your clients seem to pay whenever they feel like it. Every business owner has felt the frustration. Revenues are growing and you’re showing profit on paper, but there still never seems to be enough cash to pay the bills. Paying your bills faster than collecting on invoices creates this cash flow crunch. Paying your bills slower (and getting paid faster) is one solution to this. Good business credit means suppliers and vendors are more willing to extend your payment terms. Move from prepaying for orders, to paying 30 or even 60 days after delivery, and avoid that cash crunch! A good operating line of credit can also alleviate cash crunch. But make it a priority to pay it off regularly.

 

Avoid the personal guarantee

 

With no business credit, lenders will likely require you (the business owner) to personally guarantee any credit they extend your way, like credit cards, lines of credit or loans. If your business defaults on those debts, the lenders can come after your savings, retirement funds, personal assets and property. Protect yourself by avoiding the personal guarantee.

 

Better terms on debt

 

Good business credit makes it easier and cheaper to do business. Here are a few of the ways:   

  • Lower interest rates

  • Longer payment schedules and sometimes ‘interest only’ for a period of time

  • Put up less collateral or security

  • Less stringent reporting. Some banks might require audited or reviewed financial statements.

 

Start building credit

 

Assuming you’re already in business and operating as a corporation, here are a few easy actions to start building business credit:

 

Get a corporate credit card

Use it for all the business expenses you can. Set up the automatic monthly payments that pay down your balance owing, so you never pay interest.

 

Establish a line of credit with suppliers and vendors.

Request credit lines from 5 vendors/suppliers that you know report to credit agencies. Stick to the payment terms.

 

File and pay your taxes on time every time.

Even worse than a large tax balance owing, is years of unfiled tax returns Unfiled tax returns create uncertainty. Lenders hate uncertainty.

 

Start a credit file with Canadian credit agencies.

The two big ones are Equifax and TransUnion, so they know you exist.

 

Pay your bills on time.

Mortgage and debt payments, utilities, phone & internet, etc. Late payments will hurt the credit score you're trying to build.


 

If you have any questions, our Chartered Professional Accountants are happy to chat with you. And if you’re behind on any of your Corporate Taxes or GST Returns, we can get you all up to date lickity-split.


Thanks!

Matt

True North Accounting

 

Image by Filip Zrnzevic on Unsplash