The accountant in Miami asks, do you know your business credit score?

Feel unnerved about relying on your personal credit score for business transactions? As Accountants in Miami, we take steps to separate your personal and business finances is a smart strategy. Obviously, this means implementing a strategy to build good credit in your company’s name which is all part of our Accountant Services.

What is Business Credit?

Business credit is much like your own personal credit score – it’s a proxy for your business’s ability to repay its debts. When you start a business, this type of credit may not be at the top of your agenda. But as you plan to expand and grow, establishing good business credit will be helpful if you decide to apply for a business loan according to Accountants in Miami.

Who Monitors Your Credit?

Business credit, also known as trade credit, is the single largest source of lending and is monitored by business credit bureaus according to Accountants in Miami. These bureaus gather data on trade credit transactions and produce business credit reports for the benefit of credit issuers. Credit is measured on a scale of 0-100, with a score of 75 or more being the ideal range.

Good Business Credit Can Open Doors and Bring Many Benefits

Establishing business credit is about so much more than trying to improve your chances of securing a loan. As an Accountant in Miami, Gustavo A Viera offers these 10 reasons to start building credit in your business’ name:

1. Protect your personal credit ratings – With corporate credit, your business debts and financial obligations would be reported only on your company’s credit reports—not on your personal reports. As a result, your personal debt to credit limit ratio would not be impacted by the debts of your company.

2. Protect the corporate veil – By separating personal and business credit, you eliminate the risk of commingling funds – and this includes the commingling of credit.

3. Limit personal liability – By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.

4. Conserve cash flow – Many suppliers, businesses, and vendors will extend credit to your business with net 30-day to 60-day terms. This allows you to conserve cash while obtaining the products and services your business needs.

5. Limit accumulating personal debt – You can obtain financing for your company without supplying a personal guarantee. Funding programs like accounts receivable financing, trade credit, and merchant cards protect you from facing a lot of personal debt.

6. Maximize financing opportunities – Many lenders, creditors, and suppliers will only extend credit to businesses that meet their corporate compliance guidelines. This includes a business credit listing and ratings with the major agencies.

7. Build a business asset – A business with established credit history and available credit is attractive to potential buyers and investors. It improves the appearance of your business’ funding capacity and stability.

8. Limit inquiries – With business credit, you can stop relying on your personal credit to obtain financing, which limits the number of inquiries being pulled on you personally.

9. Receive larger credit limits – You can obtain 10 to 100 times greater credit limits from lenders as an established creditworthy business than you can as an individual.

10. SAVE MONEY! Businesses obtain more favorable rates on lines of credit compared to an individual. For example, you may pay up to 13% interest on a $100,000 line of credit whereas a business could qualify for an interest rate of 7%. That would save you almost $40,000 in interest alone.

What Affects your Business Credit?

There are many factors that affect your business credit score: payment history, the amount of credit you have available, the age of your credit profile, and even the frequency of inquiries made on your profile.

Steps To Build Credit

More than simply applying for a business credit card, there are some very specific steps you should take to properly build and manage your credit score. Accountants in Miami explain more: 6 Ways to Establish and Maintain a Healthy Credit Score for Your Startup or Small Biz. Remember: if you are a sole proprietor, you’ll need to incorporate your business first (this creates a separate legal entity for your business).

How to Build and Manage Your Business Credit Score

There are several practical steps you can take to establish and build both your Paydex score and general business credit score:

1)  Register for a Tax Identification Number

If you are a sole proprietor, consider incorporating your business. This will legally separate your personal finances from those of your business so that you can build a separate credit history. Next, apply for a tax identification number from the IRS. You’ll use this to file your taxes as an incorporated business and to register your business with credit bureaus such as D&B.

2)  Get a DUNS Number

If you are starting a business, get a jumpstart on building your credit history by applying online for a DUNS number at D&B’s small business iUpdate portal. This nine digit code is used by D&B and other credit bureaus to identify your business and maintain a credit file against it. If you already have a business credit file with D&B be sure to review it and correct any inaccurate information.

3)  Apply for Credit From Suppliers

According to business Accountant in Miami Gustavo Viera, the best place to start building credit as a startup is with suppliers. You can do this by applying for lines of credit to finance purchases such as office supplies, computers, inventory, and so on, with flexible payment terms of net 30 or 60 days. Viera advises that you choose suppliers who you’ll likely deal with on a regular basis so that you can continue to build and maintain your credit (as long as you pay them on time!).

4)  Separate Personal and Business Finances

Further, separate your business and personal finances and start building a business credit score by opening a business bank account and putting expenses in your business name. You should also apply for a business credit card. Start by approaching your existing bank or credit card issuer – since you already have a relationship with them, approvals should be easier. This blog has some tips and considerations to be aware of before choosing a card.

5)   Pay Your Bills on Time!

Since your Paydex score is based on your bill payment habits, never miss a payment date. If your cash flow can tolerate it, you could also consider paying your bills ahead of time to increase your Paydex score!

6)   Monitor Your Score

According to D&B, the credit score of about one in three businesses declines over just a three-month period. So, plan on monitoring your credit once a quarter so that you are aware of what’s happening and how it might affect relationships with suppliers and lenders.  It’s also a good habit to review your credit file to make sure it’s current and accurate. Any changes to your business, such as location, number of employees, outstanding suits/liens, and revenue – can impact your credit rating.