Using Supplier Tradelines to Establish Business Credit

Businessman reviewing business credit and finances.Just with personal credit, business credit is an integral component of a company’s overall credibility. Having bad business credit has a negative effect on the financial ability of a company moving forward, as it creates a question in the mind of lenders, suppliers, and other vendors as to how reliable the business is.

The riskier a business looks to a potential lender, the less likely new funding via a business loan or credit line will be available with an affordable interest rate and manageable repayment terms. Establishing business credit takes some time, but there are steps your company can take to boost your financial profile.

Understand the Business Credit System

Credit profiles for businesses are maintained by credit reporting agencies, similar to the way personal credit scores function. Unfortunately, each of the credit reporting agencies for businessDun and Bradstreet, Experian, and Equifax – work differently in the data they collect, from whom, and how it is then reported back to potential lenders and others seeking information on business credit history.

To establish business credit, it is necessary for businesses to keep an up-to-date profile with the major business credit reporting agencies. Information about time in operation, financial data, and number of employees may all be submitted to the credit reporting agencies to ensure business profiles are accurate.

Start with Business Tradelines from Suppliers

If a business utilizing suppliers or vendors on a regular basis, creating a line of credit, also known as a tradeline, with them, may be a helpful step toward establishing business credit. Often, suppliers are willing to extend credit to businesses, even if no business credit is already established, as a way to create a strong working relationship.

With a supplier tradeline or vendor line-of-credit, businesses have the ability to repay the total cost of securing inventory, product materials, or office supplies over an extended period. The terms of repayment vary greatly from supplier to supplier, so it is important to understand how that fits into the business cash flow over time.

Ensure Your Company is a Smart Borrower

Just with personal credit, business credit is based on the foundation that borrowers who show a responsible history of credit use are qualified for new credit from lenders and suppliers. Being a qualified borrower in business means all debts are paid on time and in agreement with the terms of the loan or line of credit, and there are few or no bankruptcies, court judgments, or collection accounts in recent years.

Having strong business credit begins with understanding your business cash flow, how much debt the business can take on without stretching the budget too thin, and how quickly debt can be repaid.

Working with lenders who report to business credit agencies is the best way to establish business credit. While most lenders have a system in place to convey information on your business debt to reporting agencies, some may not.

Final Thoughs on Using Supplier Tradelines to Establish Business Credit

To ensure you’re getting the most bang for your business buck when working with suppliers, vendors, or lenders, ask in advance if they report your credit history. Then, take steps to keep your business data updated, ask for new tradelines with suppliers, and be smart about how and when you borrow.

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Posted on March 23, 2017 by in Business Loans

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