Starting a business can come with a lot of unknowns and many business owners spend their first few months learning from their mistakes. But when it comes to building business credit, making a point to start on the right foot can save you lots of time and money in the long run. But since new business owners are entering uncharted territory when they launch their business they often do not recognize the mistakes they are making until it is too late. To save you the trouble, here are three big mistakes new business owners make when it comes to building business credit.
1. Failing to make every payment on time: Just like with your personal credit, your payment history is a huge factor in determining your business credit worthiness. When your business is just starting out, your finances can often come down to the wire in terms of making ends meet. Many new business owners will over-extend themselves and end up forming a bad habit of paying late on their credit lines. There is no quicker way to harm your business credit than to habitually miss payments on your credit purchases or business loans.
When you are just starting out, set a precedent to never miss a payment no matter what it takes. A great way to do this is to first subscribe to CRC CONplus, a proactive means of constantly monitoring all your credit transactions across all sectors and then set up automatic payments from your business bank account to service your debts. With automatic payments, even the busiest business owners can be rest assured that all the bills are getting paid and you will not damage your credit. Before you know it, you will be on your way to an excellent credit score which will allow you to get approved for the lowest interest rates at the most favorable terms.
2. Depending on your personal credit: When starting a business, it is all too easy for your business finances to get intertwined with your personal finances. While this is often somewhat necessary at first, it can quickly become an unhealthy relationship, particularly if your business financing relies solely on your personal credit. Using personal loans or credit cards to fund your business will not only get you nowhere in terms of building your business credit, it can also make you personally liable if your business goes under.
On a business credit/loan application you should apply using your business tax ID number. Using your tax ID number to open a business credit line will help you establish business credit quicker. Aside from building business credit profile, using a business credit has a number of benefits including the ability to access a higher line of credit, the convenience of separating your personal and business expenses and the opportunity to rack up credit card rewards with your business purchases.
3. Borrowing from lenders that do not report to the credit bureaus: There are hundreds of options for business financing out there, but not all of them will help you build your business credit. Even if you are making all of your payments on time, you would not be building your business credit if the companies you are borrowing from do not report your activity to the credit bureaus. With more and more alternative lending services entering the Nigerian market many business owners are moving away from traditional banks as their primary source of financing.
While online lenders can provide a quick and easy form of business funding, not all of them will help you build your business credit. For example, most merchant cash advances or peer-to-peer lending sites will not report to credit bureaus. If you do choose to fund your business through an alternative lender, always ask if they report to the credit bureaus and factor that into your decision.
For information on lenders that submit credit information to CRC Credit Bureau, please contact firstname.lastname@example.org or call +2348072090622.