Starting a business on a tight budget can make building up business credit quite challenging. However, every business has to start somewhere, and with the right plan, you can gradually establish the credit you need.
Let’s dive into how you can build business credit without relying on cash flow.
A good place to begin is with your current operating expenses. Many business owners aren’t aware that payments for recurring expenses like your business phone line, internet, and utility accounts can be reported to a business credit agency. The downside is that most service providers don’t report these payments to credit agencies, meaning you don’t get credit for paying these bills on time.
The silver lining is that there are data reporting services available that allow small business owners to link eligible accounts and automatically report payment history to a business credit agency. This can help build and improve your business credit reports.
An established business credit report and score can lead to better rates and terms for business credit cards, lines of credit, or loans from banks and other lenders. By starting with your operating expenses, you can begin to establish a business credit history based on payments you are already making. It’s surprising how many small business owners are unaware that utility accounts and other operational expenses often go unreported.
It’s crucial that these accounts be set up in your company’s name to ensure a clear separation between personal and business finances. This separation helps manage taxes more effectively and protects personal assets, preventing an accounting mess during tax season.
Some operating expenses that can help build business credit include:
1. **Business Phone Line** – Whether it’s a mobile phone, VoIP, or another type of service, make sure the account is in your company’s name.
2. **Printing & Copying** – If you regularly use print and copy services, consider setting up a corporate account. Many office supply companies offer net 30 accounts, which can serve as useful trade references for future business credit applications.
3. **Web Hosting** – Paying for web design, hosting, domain names, and other related services should be done under the company’s name. This ongoing expense can be a valuable trade reference.
4. **Marketing & Advertising** – Advertising and marketing are significant expenses for any business. Many advertising companies offer special financing terms and monthly billing options for major promotions.
Building business credit with low cash flow doesn’t have to be difficult if you leverage your existing expenses and ensure your business gets credit for them. It’s all about taking action, setting up accounts in the company’s name, and using a data reporting service to link those accounts.
