Understanding Business Credit and Maximizing Small Business Start Ups

Small businesses in the US are the cornerstone of America. According to the US Census Bureau about three quarters of all US businesses do not even have a payroll system as most are self employed or operating unincorporated businesses. In fact, there are over 4.6 million small businesses that operate with fewer than 10 employees.

According to the stats put out by the Small Business Administration (SBA), seven out of ten new employer establishments survive at least two years and 51 percent survive at least five years. For those companies that do fail the top reasons for doing so include poor management, location, insufficient capital but also poor planning – including financial planning.

Small business owners are major key economic drivers and although many of these business owners might not realize it, their contribution to the economy is substantial. One of the other things that these business owners might also not realize is that how they set themselves up, specifically how they set up their small business credit is extremely important.

Acquiring and maintaining good company credit really is the difference between failure and success. As part of an initial business plan, which should be completed no matter how large or small your business, setting up good sound financial policy including corporate credit is key.

Therefore it is essential to start off with developing and maintaining separate business credit. Rules governing small business credit are different than personal credit, and you must familiarize yourself with both in order to increase your chances of success.

Corporation or LLC?

There are a lot of advantages to setting up a separate corporate entity; purchasing goods and services under a properly structured business can allow you some personal protection if the company fails. And there are additional tax incentives and write offs depending on how you decide to run your business and set up your company credit. Credit can also assist with cash flow and payroll.

Small company credit will also allow for negotiating more favorable financing terms and start to create an independent credit rating from your personal situation. Once you set up business credit, then it’s a good idea to start dealing with other companies that report your payment history to business credit agencies to start to build up your credit reputation.

You want to increase your credibility over time in order to build a stronger foundation and to access additional company credit in the future when it comes time to expand if necessary. And you want to ensure that you keeping your bills paid on time and that there are no financial delays or chance of any liens or other adverse credit transactions occurring.

No matter what the size of your business, setting up proper business credit is still very advisable. And good credit can mean the difference between surviving and thriving and failing.

Establishing Business Credit

In the US, the key players in business credit evaluation are Dun and Bradstreet. You need to ensure that you keep in the good books with these folks because trying to recover from a bad rating is extremely tricky.

The Dun and Bradstreet Rating measures your company’s business credit rating against other companies that are similar. There is data that’s provided on different sectors including your company’s net worth, equity, number of employees, and financial stability and risk. Other factors can also include age of the company, trade payments, payment history, and public filings.

You will find that other companies you want to deal with or financial institutions that you want to borrow from will access information about your company produced by Dun and Bradstreet.

So one of your first steps toward a sound financial future is for you to register with them and get your small business credit started off on the right foot.