Why business credit is important
Establishing business credit for your box truck business is important for various reasons. Perhaps you are looking for financing to buy or lease a truck, or you need a supplier to extend you terms on inventory. Whatever the reason, it’s important to understand how business credit works and how to go about building it up. In this blog post, we’ll walk you through the basics of establishing business credit and offer some tips on getting started.
What is business credit?
So what exactly is business credit? Business credit records your company’s borrowing history and payment habits as reported by creditors. When lenders evaluate your loan application, they will look at your personal credit score and your company’s business credit score. The higher your scores, the better your chances of getting approved for financing or receiving better terms from suppliers.
In addition to being an important factor in the lending process, good business credit also helps you get new contracts and work with larger companies. An established business credit score can help qualify your company for discounts with some vendors and even allow you to bid on large jobs that may not have been available previously.
A strong business credit score can be hard to build and takes time to maintain, but the benefits are well worth the effort. Here are a few quick tips for growing your company’s business credit:
– Maintain accurate records: Be sure to keep good records of all payments you make on any outstanding balances. It’s also important to review your records regularly and update them when you receive new invoices or statements.
– Promote prompt payments: One way to build business credit is by promptly paying invoices. Lenders and suppliers look favorably on companies that pay bills on time and may offer them discounts for doing so. If you have a question about whether a payment qualifies as on time, contact your vendor and ask them to define how they consider late payments.
– Ask for credit terms: When working with new suppliers or applying for financing, inquire about the possibility of extending your company’s business credit terms. In many cases, suppliers and lenders will extend credit to companies with good payment histories and high business credit scores.
– Review and track your business credit: Many of the major credit bureaus offer free online services that allow you to monitor your company’s business credit score. You can regularly review the information creditors report about your company and track your progress toward improving your scores.
12 Steps to build your business credit fast
Step 1. Make sure you have a business address and telephone number
Establishing a business address and phone number is the first step toward building business credit. It allows lenders and suppliers to contact you during the application process and helps establish your company as a professional business.
Step 2. Registration of your business entity
The first step to growing business credit is registering your business entity. To establish a good business credit score, the creditor will need the license or registration number of your company’s business structure. Most of the major box truck leasing companies have previously obtained a license from their state and can easily provide you with this information if requested.
Step 3. Obtain a Federal Employer Identification Number (EIN)
After establishing your business entity, you’ll need to get an Employer Identification Number (EIN). The EIN is a nine-digit number that serves as your company’s tax ID and is similar to an individual’s Social Security Number. When creditors report information about your credit accounts or loans, they will include this number in their reports.
Step 4. Establish a business account at a bank.
Once you have your business structure and EIN in place, opening a business bank account is the next step. It’s a good idea to use this account as the deposit source for all of your company’s funds. This will help ensure that creditors have an accurate record of your company’s financial status at all times. In addition, using business funds to make business purchases can help you build business credit for your company.
Step 5. Request a DUNS number for your business.
Dun & Bradstreet offers a DUNS number for your business, a nine-digit identification number that serves as an identifier of your company’s credit history. Once you obtain your DUNS number, it can be used to add additional detail about your company when you’re applying for financing or establishing new accounts.
Step 6. Open credit lines with suppliers and lenders
Opening net 30 accounts are one of the best ways to build business credit. A net 30 account means that the supplier will give you up to 30 days to pay your bills; however, it’s still your responsibility to make sure invoices are paid before the due date because past-due accounts may still affect your company’s business credit score.
Step 7. Maintain an open line of communication with your vendors and lenders.
By keeping an open line of communication with your suppliers and creditors, you can help ensure that information sent to the credit bureaus is as accurate as possible. When dealing with new suppliers or companies providing financing, please take advantage of their pre-qualification offers and ask about extending business credit terms. These opportunities allow your vendors and lenders to get to know your company and its financial status.
Step 8. Consider obtaining a business credit card or line of credit.
If you are spending a lot of money on the road, consider opening a business credit card. This will help establish your company’s business credit and ensure that creditors have access to accurate information about your company’s finances at all times. Line of credit accounts can also be valuable for working capital or other expenses that your box truck business may incur.
Though business credit cards and lines of credit are a good way to build your company’s business credit score, it’s important to remember that they can also harm your overall credit utilization ratio. When opening new accounts, keeping this in mind will help you avoid taking out more debt than necessary.
Step 9. Take out a loan from a lender that reports your credit information to business credit bureaus.
When your business is new, you may not qualify for financing options that include extended credit terms. If this is the case, consider taking out a small loan from a lender that reports business credit information to one or more of the three major credit bureaus. By doing so, you can help establish your company’s business credit while working toward a longer-term financing option.
While your company’s growth and success can affect your personal credit score, this is not a primary factor when building business credit. When applying for financing or establishing new accounts, always use your company’s EIN and business structure information to help build a strong foundation of business credit.
Step 10. Ensure that your business pays its bills and repays its loans on time.
If your company is prompt in paying its bills and meeting the terms of any loans it has taken out, you’re helping to build a positive image of your business with creditors. When you’re prompt in repaying debts associated with your company’s business credit, you’re showing that you’re a reliable borrower who can be trusted with a line of credit or loan.
Step 11. Ask about a credit line increase when your company establishes a strong history of on-time debt payments.
If your business is growing and succeeding, you may find yourself in a position where you need to take on more debt. If this happens, consider contacting creditors or lenders that have provided financing for your company in the past to ask about increasing your line of credit. Showing that you’re responsible with an existing line of credit will help ensure that you can take on more debt when needed.
Step 12. Monitor your credit score monthly.
Even after you’ve established your company’s business credit, it’s important to continue monitoring the credit scores your creditors are reporting every month. Doing so can help you identify any potential problems that may be affecting your business’s ability to get financing before they become too problematic.
If you’re looking for new ways to finance some of your company’s needs, several different options can help you take your business to the next level. Understanding how these financings can affect your company’s business credit is an important part of finding the right one for your box trucking business.
While every type of finance may be used differently by other companies, it’s always important to do what’s best for your company. When considering financing options, always take the time to understand how each one will affect your business’s ability to get credit in the future.
A business credit score is important for box truck businesses because it can help you secure loans and lines of credit, which are essential for expanding your business. By following the tips in this article, you can establish a strong business credit score and improve your chances of success as a box truck entrepreneur. Ready to get started? Sign up for our free box truck business course today!