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Small Business

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The Explainer: Building Business Credit

Like People, Companies Have Credit Reports and Scores

Managing business finances can be difficult. The Explainer aims to help you better understand the services, terms and strategies that make your business tick.

Credit can be an essential part of business success, from procuring startup money to business credit cards to loans that might be necessary along the way. Good business credit may help you get financing at better terms and suitable deals from suppliers. But it's important to understand how business credit works.

Personal credit counts.

Your personal credit score can make or break your attempts to get business credit until your company has a track record. “One of the challenges that a startup faces is not having any income to show the bank that they have sufficient cash flow to be able to repay them," says Charles Capers, a business advisor with the C.T. Bauer College of Business at the University of Houston. Before applying for any loans or lines of credit, check your credit reports from each of the three major bureaus to make sure there aren't any errors or delinquencies that will keep you from being approved.

Your business credit file is important.

Find out if your small business has a credit file by checking with Dun & Bradstreet and the other organizations that manage business credit records. If your business doesn't have a Dun & Bradstreet file yet, speed up the process by applying for a D-U-N-S® number, a unique business ID number. If there's a file already, make sure it is accurate.

Your expenses should be separate.

Part of establishing your business' track record is keeping the lines clear between business and personal finances. “Keep your deposits and expenditures for your business completely separate from your personal accounts," says David Haas, a financial planner in Fair Lawn, N.J. “This means at least having a separate business checking account and business credit card." Even if you have a sole proprietorship under your own name, open separate accounts and only use those separate accounts for the business, Haas says.

You might want a business credit card.

Using a business credit card will help you separate expenses and can fill the gap between bank borrowing and your day-to-day needs. Plus, many business cards come with perks, such as discount rates on travel expenses. But just like personal credit cards, manage them well to ensure you have the best credit score.

Pay bills on time.

Keeping up with your debt responsibilities is key to maintaining good credit. It's also good for your reputation — no one wants to do business with a company that's habitually late with a payment — and may save you money if you can snag an early-pay discount.

Check your file regularly.

Your business credit score will change over time, and you should check regularly to make sure you know what's happening. If your score starts to decline for some reason, you may be able to make a correction before it affects your business.

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