Whether
your firm has been operating for years, or you decided over last
night’s coffee to start a new venture, you’re sure to face the need for
business credit. Entrepreneurs often ask friends and family to invest in
their start-up businesses, and many draw on personal funds to launch
new firms. But to address ongoing business needs – such as requirements
for inventory, equipment, and real estate – most firms seek additional
help from credit card companies and banks.
Unfortunately,
today financial institutions are more wary than they used to be about
extending credit to small companies. And with many business revenues
faltering because of market pressures, even well-established companies
have found it difficult to obtain loans.
As
a result, establishing good business credit has become more important
than ever. To convince a lender that your company represents a good
risk, you should first prepare a well-written business plan. It need not
be as long as a Tolstoy novel, but should lay out in some detail your
products, pricing, estimates, competition, and basis for cash flow
projections. A clearly defined business plan will convince potential
lenders that you’ve addressed the greatest obstacles to your firm’s
success. Before approaching lenders, consider your business structure as
well. For example, a limited liability company or corporation may be
seen as less risky than a sole proprietorship. The goal is to present a
professional image to convince the lender that your company will prosper
in good times and bad.
To
establish good business credit, you’ll also want to make sure all
required licenses are current and your firm is registered with the major
business credit reporting bureaus such as Experian and Equifax. Work
with vendors who report to these bureaus so that your on-time payments
are tracked.
Of
course, the key to building good business credit is making all your
payments on time. As with personal credit, your business credit score
will climb as managers prove their skill at monitoring the firm’s cash
flow and their commitment to honoring the firm’s obligations.
Also
consider having our office review your financial statements before you
send them to the bank. If you need assistance with this or other
business concerns, give us a call.
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