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3 Quick and Easy Ways to Establish Small Business Credit

Here are a few things small businesses can do to get over the initial hurdles of obtaining business credit from suppliers and vendors.


Many small businesses have trouble attaining lines of credit or loans because they don’t have established credit scores.

“To apply for credit and the best place to start is with suppliers. Many types of suppliers, including major brands, extend lines of credit to businesses like yours giving you the opportunity to finance purchases and conserve your company’s cash,” according to the SBA. “You can obtain products like office supplies, computers and marketing materials with payment terms ranging from net 30 to net 60 days.”

“You should focus on applying for credit with suppliers that provide products and/or services your company needs in order to make regular purchases using your credit line. By paying invoices on time you will build business credit history and increase your company’s creditworthiness.”

The catch-22 is that you need successful transactional histories to increase credit scores, but most suppliers and vendors are hesitant to conduct business on credit if your credit scores are too low or nonexistent.

That said, there are a few things small businesses can do to get over these initial hurdles.

 

1. Remit Early Payments

Many manufacturers and suppliers offer discounts for paying in cash or for paying early.

Taking advantage of deals, such as “2% 10, net 30” [1], can help a firm in multiple ways. Suppliers are more inclined to give this type of deal than a cash discount, and these deals are a great way for you to save money and build credit if your cash flow can sustain early payments.

 

2. Pay off Liabilities Before Maturity

Many reporting agencies boost the credit scores of businesses who pay off their liabilities before they mature. This is a quick and easy way for businesses to boost their credit without creating new lines of credit or increasing their total liabilities.

 

3. Convert COD to Business on Credit

Another great way to establish small business credit is to convert current cash on delivery transactions to business on credit.

This has a few benefits, one of which is that it frees up cash. The business remains more liquid so it can take advantage should an investment opportunity arise. However, it is important to remember that not paying suppliers and vendors on time will hurt your business relationship and creditworthiness; on-time payments must be prioritized.

Some suppliers maybe hesitant to convert CODs to business on account since it means they won’t have cash as quickly. You can alleviate some of their hesitation by first running a business credit report. This credit report calculates your business’s probability of default over the next year. If you present it during negotiations, it’s a great way to show suppliers and creditors that you are in stable financial health and that you can meet your financial obligations.

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[1] This means you will receive a 2% discount if you pay within 10 days of the dispatch of goods, and that the payment is expected within 30 days.

 

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Photo: Annie Spratt, Unsplash
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