Small businesses are the lifeline of the American economy. According to the Small Business Administration, there are approximately 28 million small businesses in the USA, contributing more than half of new jobs and accounting for 54% of all sales revenues generated. While small businesses are typically run by entrepreneurs and small numbers of people, they are a huge part of the success of the nation’s economy – even during the recent recession. For this reason, it’s critical that small businesses are built upon solid financial practices that set the stage for future success.
RUNNING A SMALL BUSINESS CAN BE RISKY
Typically, small business owners accept much of the financial risk of setting up a small business by using their own collateral, savings and credit. They may even reach out to family and friends to raise the capital for startup costs, such as a building, equipment, inventory, and hiring a small team of employees. But once things begin to ramp up, a business owner will be looking for ways to increase revenues without accepting the full legal risk of the business.
It’s important to separate one’s personal credit from business credit for a number of reasons. First, in the case of a lawsuit, a small business owner may find his or her entire portfolio under threat of seizure. Separating business credit and personal credit is vital to avoiding this unpleasant scenario.
Secondly, if the business suffers a loss or doesn’t generate enough revenue to cover expenses, a business owner may get into the habit of dipping into personal financial resources and running up a huge debt.
Lastly, it can be difficult, if not impossible, to expand operations if a business owner has suffered from a bankruptcy or has ongoing credit issues that prevent getting small business loans and other forms of financial support.
There are some critical building blocks that can set a small business up for sustainability. It comes down to establishing, improving, and monitoring business credit.
Establishing business credit
No matter where you are in your small business, it’s relatively easy to establish business credit, by following the proper channels. Here are some steps:
- Check with Dun & Bradstreet to see if your business has a DUNS number and any credit history. You may have forgotten that you filed this at some point in the past to apply for a business loan or other line of credit. If you don’t have a DUNS number, then you will need to establish this as soon as possible.
- Set up a business bank account using your DUNS number and business information. Start paying all your business-related expenses, including payroll, using this account instead of your personal accounts. Use your business branding for all mailing purposes and establish a separate mailing address from your home address with a post office box or other business mailbox rental. Apply for a business credit card through the same bank.
- Look into obtaining small lines of credit for your business using your DUNS number as the identifier (as opposed to your Social Security number). Some examples of small business credit can include leasing business equipment, office and business supply credit cards, and establishing relationships with reputable business vendors that report to the major credit bureaus.
IMPROVING SMALL BUSINESS CREDIT
In order to improve your business credit, it’s important to pay all your business invoices and other bills on time. Pay them early whenever possible. Once you have done this for at least a year, you can then consider applying for a small business loan to further fund your business growth and create a stronger foundation. Check with your current bank to see if you are eligible for a standard business loan. But be aware that many banks are giving fewer loans to small businesses in the wake of the recession. Business credit can come from a myriad of lending sources, including investors who work through a lending agency that focuses on supporting small businesses. If not, The good news is that there are alternative business lenders, like United Capital Source (UCS), that are available to help you when you need it.
MONITORING BUSINESS CREDIT
The final building block in good small business credit is to continually monitor it from outside threats. A report from Keeper Security and the Ponemon Institute revealed that half of all small businesses have experienced some form of information breach in a 12-month period. Another study, by Towergate Insurance, showed that even with insurance, 82% of small business owners don’t believe they are targets for attacks.
The truth is, every business should be monitoring credit all the time because they are more attractive to criminals. Choosing a business creditor who offers credit monitoring for free or low cost is a plus. It’s also important to monitor accounts with vendors and watch for erroneous reports to the business credit history.
HOW SMALL BUSINESS LOANS HELP ENTREPRENEURS
Getting a small business off the ground is not always easy, but with the help of business credit it’s possible. Small business loanscan be obtained from a number of sources, from family and friends to government agencies, banks and credit unions. However, sometimes a business owner may find challenges with getting approved for a line of credit for reasons such as no or poor credit history, lack of collateral, or a marketing plan that doesn’t have the factors that the banks are looking for. But fear not – this where an alternative lender like UCS can help.
ALTERNATIVE WAYS TO OBTAIN BUSINESS CREDIT
There are several options that can help established small businesses obtain an alternative business loan, when traditional methods or government grants are not available. A merchant cash advance or a bad credit small business loan can be your gateway to a sustainable future. For businesses that are generating good profits, a small business loan based on accounts receivables factoring or working capital loans may provide the right option.
No matter what kind of financial needs you have as a small business owner, it’s critical that you explore all your options before settling on any one form of business credit. By following the above building blocks of business finances, you can set your business up for long term success.