For small business owners, it's important to build credit early. In addition to giving you flexibility to expand, credit can help streamline your cash flow and create strong relationships with your partners and vendors. Strong credit can empower your business with options that cash alone simply can't. Here are three steps to help you get started building your credit history:
1. Make sure you have good personal credit.
When you're just getting started in business, you have very limited financial history. That's why, at first, you'll need to rely on your personal credit history. "This is of high importance, because lenders look at your personal credit when you apply for a business credit line," explains Allen Walton, founder at e-commerce store SpyGuySecurity.com. Before applying for a business line of credit, make sure your personal credit history is as strong as it can possibly be. A financial advisor can help you get on the right track.
2. Start small with a charge card.
A charge card is different from other lines of credit, like a regular credit card, in that it needs to be paid in full each month. Typically, a business owner can apply for a charge card with a personal credit history only.
"After four to six months of using this card, I applied for a personal line of credit," explains Walton.
Even with a strong payment history on his charge card, however, Walton was still unable to obtain a line of credit. His response was to stay persistent.
"I called the credit card company's reconsideration request line and told them that I have four months of statements that I could fax to them, showing that I paid off the $10,000 to $20,000 balance in full, each month," says Walton. "Because of this, they knew I was trustworthy enough to extend a $5,000 credit line, and they decided to reverse their decision."
3. Outline a clear strategy to consistently pay your bills in full.
Jason Parks, owner at The Media Captain, has always sought to keep his debt to a minimum.
"I didn't take out any loans when starting my company," Parks says. "I knew that in order to establish a solid line of credit for the business, I couldn't be in a boatload of debt."
To build his credit history, Parks always paid his credit card on time. He outlined a strategy for revenue and expenses to ensure he could always pay his bills. This self-discipline helped him to eventually obtain multiple lines of credit as he's needed them.
"I now have a solid credit history for my business and do not have to worry about approvals," Parks says.
Don't stop the momentum. Whether your credit history is strong, weak or nonexistent, you should constantly work to improve it to ensure you are always in the best possible position to grow.
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PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”). This article has been prepared for general information purposes by the author who is solely responsible for its contents. The opinions expressed in these articles are those of the author and do not necessarily reflect the opinions of PNC or any of its affiliates, directors, officers or employees. This article is not intended to provide legal, tax or accounting advice or to suggest that you engage in any specific transaction, including with respect to any securities of PNC, and does not purport to be comprehensive. Under no circumstances should any information contained in the presentation, the webinar or the materials presented be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy or should it be considered legal or tax advice. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc., will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. Banking and lending products and services, bank deposit products, and Treasury Management products and services for healthcare providers and payers are provided by PNC Bank, National Association, a wholly owned subsidiary of PNC and Member FDIC. Lending and leasing products and services, including card services and merchant services, as well as certain other banking products and services, may require credit approval.