When starting or running a new business, bad credit report creates many problems for small business owners. One of the common problems that small business owners face is that they spend their entire savings in the initial funding of the company leaving very little capital for the company to operate successfully & generate profits.
It can be a struggle to uphold operations, let alone grow. So ruling additional funding abruptly is a crucial issue. Usually, the new business owners reach this point that they lose all chances of getting additional finance by overextending their personal credit or perhaps paying late or even missing payments as the business gets off the ground.
Unfortunately, they learn too late that most profitable lenders look at both personal and business credit – usually non-existent for newer companies – when evaluating loan requests. Hence it is crucial for small business owners to establish and maintain a positive credit history
Below are the basic steps of establishing and maintaining good credit report:
• Apply for a federal tax ID number (FEIN) and establish a legal entity, such as a corporation or LLC.
• Establish business credit through securing business loans or business credit cards.
• Be sure to pay back all bills and loans on time to establish good credit.
• Generate consistent cash flow to demonstrate the company’s capacity to repay business credit lines and loans.
• Thoroughly review your personal credit history (all three major credit bureaus: Equifax, Experian, and TransUnion) to ensure there are no mistakes.
• To the extent possible, clean up any outstanding collections, charge-offs and judgments.
• Develop a well-written business plan that clearly explains your financing requirements and how your business will be able to meet its repayment obligation. You should also be able to give lenders a good overall spoken description of your business within a few sentences or less.
Without the above mentioned points it becomes very difficult for small business owners to thrive in a tough economy. The key to success of very business is to be prepared with every kind of documentation, so that when time comes you are ready for every rough time.