credit cards credit history

Growing your business might mean growing your debt

Falling credit cards - debt conceptby Hispanic Chamber of E-Commerce Team

Over time, your business will—hopefully—grow, seizing new opportunities to expand and to flourish. As these opportunities present themselves, you may face the question of how you’ll pay for them on the front-end—how you’ll afford a new building, for instance, with larger office space, or how you’ll get additional inventory.

In these cases, you may find that you need to borrow money—which of course requires you to have some decent business credit. Building credit is as important for corporations as it is for individuals—and it can be just as difficult.

There are a few tips you can keep in mind to make the process a bit smoother, though—including the following:

  1. Start by acknowledging that it’s not entirely about the business credit; your personal credit is also going to be scrutinized, as likely as not. Because most new businesses don’t really have a credit history to speak of, lenders will look at the personal credit of the business owner. Your personal financial habits, then, could very directly impact your business’ long-term financial options.
  2. At the same time, it is important to maintain a separation between the company’s finances and your own personal finances. You shouldn’t be putting business expenses on your personal credit card, and you definitely shouldn’t be putting personal expenses on the business card. Either scenario could come back to haunt you.
  3. Apply for credit early—before you really need it, even. If you have no credit history to speak of then it could take months, even years for you to get approved. If you open up a business credit card or take out a very small loan early on, it gives lenders something to appraise—and could reduce your wait time when you need to take out a much larger loan.
  4. Keep an eye on your credit cards and loan payments—and pay them on time. This is obvious yet it cannot be emphasized enough: The better relationship you can maintain with your lender, the more likely you’ll be to get a more sizable loan down the road.

Building business credit takes time, and it takes a sense of direction—so start now. Remember, as you do, why you’re doing it, and how it might ultimately serve your business down the road.

Your credit history can make or break your small business

credit history, credit reportLuis O De la Hoz, Vice President Lending Team at The Intersect Fund, addressed important issues related to access to non-traditional funding for small businesses at the Hispanic Chamber of e-Commerce Google Hangout.

De la Hoz also reminded small business owners that they can save up to $250K in their lifetime by having a good credit score. Where do these saving come from?

… saving up to $150 each month on your car payment.

…saving up to $80 each month in your car insurance.

…avoiding mandatory security deposits when opening an account for a public utility service.

…. up to $2000 in security deposit for the purchase of your cellular phone.

According to De la Hoz, microloan expert and small business advocate, there are three important elements to consider when building or maintaining your credit history:

Open at least three accounts (credit cards, car loan, mortgage, personal or small business loans, or similar) reporting to the credit bureaus that you are paying on time.

  1. Keep your revolving credit account balances below 30 percent (maximum of 50 percent)
  2. Always pay on time.

Not having a good credit record can impact your job search in some industries, complicate or impede your access to a college education, and even qualify for business loans and other small business services that are offered in the marketplace. Vendors will also look at your credit history to see if you are a reliable payer, and other organizations will rate your business credit according to your personal credit until your business is established.

Another issue that is common among Hispanic business owners is the lack of knowledge about their credit history. De la Hoz suggests that entrepreneurs and startups follow carefully their history through the credit bureaus such as Experian, TransUnion, and Equifax. You can also receive one free report a year to check possible mistakes or errors.

A small business owner himself, De la Hoz’ journey as an entrepreneur made him passionate about supporting small business owners. “Latino business owners want an advisor who is specifically trained or certified in helping small businesses, speaks their language of preference, and is involved in the community,” De la Hoz said. Approximately 69 percent of Hispanic business owners looks for an advisor who is specifically certified to work with small businesses opposed to just 50 percent of general business owners looking for advice.

Six in 10 Hispanic owners say they want an advisor who can speak in their preferred language. Being involved in the community is more than twice as important (32 percent) to Hispanic owners as it is to the general market (14 percent).