In order to get your business off the ground you are going to need start-up capital, which can often be easier said than done for most. Gaining approval for the capital you need to start your business means convincing creditors that the risk they are willing to take is not irresponsible or likely to come back to bite them.
Given the comprehensive checks lenders and credit bureaus will perform prior to making a decision on your application, it is beyond doubt that your payment history will be thoroughly examined. However, even recognizing the importance of credit history or many learning how to build credit is surprisingly not considered by many budding entrepreneurs. There are a number of ways you build your credit score, which will make it more likely to obtain credit or investment on a new business venture.
Start by improving your personal credit score
It is not uncommon for new businesses to be flat out rejected due to the accumulation of bad personal credit of a director or trader. If you are in a position where your personal credit could affect your success of securing capital, ensuring you at very least pay the minimum amount on credit cards, for example, will see a positive mark on your credit record.
If obtaining a credit card is not possible, there are other options such as secured credit cards, which will allow you to slowly build your credit scores. Given that many banks will only consider applications from business owners with a FICO score of 640 and above, having a good personal credit score can be essential. If you are unsure, you can check your free credit score instantly to see where you stand.
Sort out your business affairs prior to applying for credit
Understanding how to promote your business as a fully-functional and organized entity will likely influence how serious a lender will take your application. Setting up a corporation or a limited liability company ensures the distinction between your personal and business affairs. This is also helped by having bank accounts, addresses and contact details which are different to those you use for everyday affairs.
Ensuring you have an Employer Identification Number (EIN) from the IRS and a DUNS business credit profile number will ensure you appear legitimate, and mean business. In addition, providing transparent and clean financial statements and tax return forms will convince your potential lender that you can be trusted.
Ensure creditors are paid on time
If you are looking for an extension in credit, this is imperative for giving you a chance to develop your business. Foresight, therefore, is essential to your prospects. Try to settle invoices and all other payments with creditors on time, and if possible, early. This will not just improve the relationship between yourself and clients, but will help you attain a perfect credit rating which will make it much easier to get credit in the future.
A judicious approach to handling your affairs will see an improvement in how much of a risk you are deemed to be from the perspective of a lender. This can often have a massive effect on your success as a business, and serve you exceptionally well further down the line.