If you have been denied for business financing before, don’t worry. Most Canadians who apply for a small business loan get rejected for various different reasons. One of the main reasons is having bad business or personal credit scores. It’s never too late to start building business credit if you haven’t taken the appropriate steps already.
Let’s take a look at 8 ways you can build business credit and be eligible for the capital you need to grow or expand your business.
Verify you have a business credit file
Your business credit file is created by Canadian credit bureaus. They store your business credit information. The two major ones in Canada are Equifax and TransUnion. Before opening a credit file with a credit bureau, you must conduct a search with each agency and find out if your business already has a file in their database. Conducting a search is simple – just go on their website and type in your business’ name, city, province, and postal code number. If your business comes up, then great! If not, here’s what to do prior to opening a credit file:
- Establish your business entity
- Obtain a business number or identification number
- Then contact each credit agency and open a file with them
Keep in mind that each agency collects its own information about your business through different databases. So make sure that you have a credit file with each agency.
Open a business credit card
The second important step to build your business credit is to open up a business credit card account. This type of credit line is also essential to finance the operation and growth of your business. Your business credit card will cover day-to-day purchases for your business. It will also help to solidify the separation of your personal and business finances, which we will get into more in the next few points. The more you use your business credit for purchases, and the faster you repay your remaining credit balance, the quicker you will build up your credit score.
Alternative: Apply for a business loan
After you received your business cards and start using them regularly, the next step is to repay them on time and in full. Over time, this builds up your payment history. Then, when it comes to applying for a business loan, search for lenders who report to one of the major credit bureaus. Banks and traditional lenders routinely report your business loan repayment histories to credit report agencies. Most online and alternative lenders don’t file reports to credit bureaus. Before you apply, check into the lender’s policy!
Pay on time
In simple terms, the sooner you pay your bills, the better your business credit score will be in the long run. A good rule of thumb is to pay 30 days before the due date. Some creditors will even give you an incentive for paying early. For instance, they might offer you a discount if you pay within 10 days. This is beneficial because it not only improves your business credit score significantly but also makes you look responsible to the eyes of the lenders.
Correct credit report errors
There is no doubt that even the smallest error on your credit report can affect your business’ financial health. It’s mandatory to check your credit report regularly and file a dispute to one of the major credit bureaus when you come across a mistake.
Some of the most common errors to watch out for are as follows:
Incorrect business information – old mailing address, misspelled the business name, inaccurate date of establishment.
Inaccurate account status – these include late payments that you actually did pay on time, closed accounts that are still open, any debt that you have previously paid in full.
Negative information – judgments, bankruptcies, loan defaults, strange accounts opened in you or your business’ name (fraudulent activities).
Separate your business & self, legally and financially
Keeping your business and personal financial information separated is essential for the success of your business. The most important thing is that it will protect your personal assets and will make applying for a business loan and other lines of credit much easier. It also ensures that you don’t max out on your personal credit line if your business is financially struggling. Here are two things to consider when separating your business and personal finances:
Establish your business as a completely separate entity – this includes incorporation or sole proprietorship. You can learn more here.
Apply for a business credit card – As mentioned previously, get business credit cards and only use it to make business-related purchases. Don’t forget to pay them off on time (or early!) each month. Not only will this help your business credit score, but will also help build your business credit history which can then lead to better loan payment terms.
Monitor your business credit score
Fraudulent activities and errors can occur on your business credit report, which will significantly impact your score. This, in turn, will make it difficult for you to qualify for financing.
That’s why you should check your business credit reports at all times for any mistakes or errors, at least a few times a year. In case you do find one, try to get it corrected as soon as possible.
You can sign up for Loop to get your free Equifax credit scores and insights for your business.
Ultimately, building business credit takes time. That’s why it’s important to start as early as possible. You may not foresee needing a loan during the first few months or even a year of running your business, but the time will come. By establishing your business credit now, you are basically giving yourself a safety net for the future.
Follow the steps provided to build your business credit. Then work on keeping it positive by being a responsible borrower. You will thank yourself on the day when you qualify for the best financial products with the best and lowest rates possible!