One simple mistake could take thousands of dollars of hard-earned profits out of your pocket. And as a business owner, you know that every dollar counts—especially in today’s inflationary environment. But knowledge is power, and knowing what to avoid can keep your business and your finances running smoothly for years to come.
7 mistakes that may be costing your business opportunities
Let’s talk about the seven errors you may be committing, which may vary based on the type of business you run.
1. Your company’s entity structure
A business is defined by its entity structure: sole proprietorship, corporation or LLC (Limited Liability Company), etc. This determines how you will pay your taxes, your personal liability to the company as the owner, and how you can raise the funding your business needs to reach its full potential.
2. Your company’s SIC code (Standard Industrial Classification Code)
All business types are given this code to determine if they are considered high-risk. If your business doesn’t have a solid foundation, the opportunities you have in transacting with lenders and investors will be limited.
3. Your company’s supplier credit
Your ability to pay suppliers is one way to improve your business credit. But the thing is, not all suppliers report to the credit bureaus. Those who do will not necessarily disclose your information on a monthly basis. To build a good business credit history, it’s important to ensure that your suppliers contact the three credit bureaus.
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4. Your company’s business data
First, you need to confirm that all your public data is updated. If you changed your number, you need to have this listed in the 411 nationwide directories. Some lenders and financial institutions expect potential borrowers to adhere to this corporate compliance. Not only that but giving incorrect or incomplete information in any credit application will also result in the rejection of your loan. This may seem like a trivial thing, but it can harbor consequences for your business.
5. Your company’s bank records
There are no two ways about it, a company with bad bank records will not have a good credit rating. This can cause a financial institution to decline your request for a line of credit. Make sure you know and maintain the balance that enables you to achieve an outstanding record.
6. Your company’s credit cards
A little-known fact is that business credit cards do not always report to the credit bureaus. Reach out to them to request they pass on your information.
7. Your company’s separate credit history
Whether you have sole proprietorship or not, confirm that the terms and conditions of the creditor indicate they will report your payment history in the correct credit file. Otherwise, you might find it difficult to keep your personal financial struggles from affecting your business.
According to FederalReserve.gov, the nonfinancial business debt (both corporate and noncorporate) rose by 38% over the last 5 years—from 14.3 trillion to nearly 19.81 trillion. This is proof that businesses are increasingly relying on debt to help move their company to the next level. While that may be considered a good sign, business owners must never forget how important it is to stay on top of their business’ credit reporting.
Be cautious of your business credit standing
Business owners—particularly small businesses—can fluctuate between optimism and pessimism depending on market conditions and the demand for their service/product. Rising inflation and interest rates can make it more challenging and expensive to borrow money. This makes having a strong credit history more important than ever.
Around half of small businesses are very optimistic about near-term prospects, according to a 2022 survey by the PNC Financial Business Group. Over 60% plan on raising their prices in the near future. And almost 70% expect a recession in the next year.
While many factors affect your level of restrictions on borrowing, creditors will be more confident lending to a business with good creditworthiness.
The following tips can help you maintain a good business credit history:
- Diversify your credit accounts. This includes business credit cards, lines of credit, and business loans. All can help raise your credit standing.
- Be careful regarding credit accountabilities. While having diverse credit accounts is important, it should be done wisely. Never borrow more than what you can afford to pay off. If you are using a credit card, make sure you don’t get in over your head and find yourself needing business credit card debt relief. Lastly, manage your credit well and make sure that everything serves a purpose in your business’ success.
- Make timely payments towards your debt obligations. If your profits aren’t high enough to cover payments, you may want to research your options for business debt relief. For instance, if you are racking up too many credit card balances, you can talk to your credit card issuer and request a lower interest rate.
- Monitor your credit file. Maintaining your business creditworthiness is only possible if you monitor it regularly. That’s the best way to catch a small issue before it turns into a huge problem.
Inflation and consumer spending discrimination are challenging today’s business model. By keeping an excellent credit history, you can have access to the credit you need to help ensure profitability during this difficult time.