Starting a small business can accompany lots of uncertainties and many small business owners spend their first couple of months in learning from their mistakes. But in terms of building business credit, you need to start on the right foot so you can save lots of cash and time sooner or later. However as the new businesses are entering unfamiliar area once they start their business they normally don’t understand the mistakes they are making until it is too late.
Here are three big credit mistakes that new business owners make when it comes to building business credit.
- Fail To Make Payments On Time
Similar to your personal credit score, your repayment history is a major factor in figuring out your business credit score. When your small business is just beginning, your finances can often come all the way down to the wire in terms of earning and spending equal amounts of money. There are many new small business owners that will overextend themselves and yield to be developing a bad habit of paying late on their credit lines. There may be no quicker way to impair your business credit that to normally miss payments on your small business loans or credit cards.
When you are just beginning your small business, set a standard to never miss a payment irrespective of what it takes. An incredible way to carry this out is to set up automatic payments from your business bank account. With the automatic payment system in place, even the busiest business owners can be certain that all the payments are getting paid and also you will not harm your credit. Before you understand the process, you will get an outstanding credit score that will help you to get approved for the lowest interest rates at the most favorable terms.
- Preferring Personal Credit Rather Than Business Credit
When starting a small business, it is quite easy for your business finances to get linked with your personal finances. No doubt it is important in the beginning, but can quickly become an unstable association, generally when your small business financing completely depends on your personal credit. Using personal loans to finance your small business is not a good idea since it will not help in building your business credit and also make you personally responsible for business failure.
You can apply for funding on your business credit card by using your personal Social Security Number or Tax ID Number. Opening a business credit card using Tax Identification Number will also help you establish your business credit quickly. With the exception of building business credit, there have been so many benefits of using business credit cards, which includes the access to higher line of credit and also provides you the convenience of splitting your business and personal expenses.
- Borrowing From Unauthorized Lenders That Don’t Report To Credit Bureaus
There are so many options for small business financing available in the lending market, but not all funding options are the same and not all will help you in building your business credit. Even you are making your payments on time; you will not be building business credit if the lenders you are borrowing from is an unauthorized lender who don’t report to the credit bureaus. With the increasing number of alternative lending services in the market, many small business owners are moving from conventional banks to alternative lending as their primary source of financing.
As the online lenders can offer a quick and easy type of business financing, you should also know that not all of them will help you build business credit. For instance, there are so many peer-to-peer lenders and merchant cash advance providers that will not report to credit bureaus. If you opt to fund your small business through an alternative lender, you need to always ask if they report to the credit bureaus.