Building A Credit Rating To Help Finance Your Business
Some lucky businesses go from inception to final sale without ever tapping formal credit at all. They start out privately funded and generate all their expansion capital internally. Other businesses borrow only rarely – perhaps only once or twice, to buy commercial real estate. However little borrowing you may intend though, you are still well advised to build your credit reputation carefully.
First you must realize that no one can accurately foresee every possible emergency or opportunity. When the occasion to borrow does arrive, the availability and cost of the money you need will depend upon your credit rating. The differences can be critical. In 1982, after it had already received federal guarantees and put the worst of its losses behind it, Chrysler Corporation was still paying 3 points more than GM for its finance unit money – at a time when the difference between a sale and no sale was often less than a point or two. So, no matter how little borrowing you may plan to do, you should prepare by attending to that important credit rating, which is easy to accomplish.
Remember that you are tapping into your credit, and either damaging or improving your credit rating, whenever you lease equipment, rent property, or place an order for supplies without paying for it in advance. Indeed, if you are starting absolutely from scratch, most suppliers will put you on a “COD”, or a three-day, payment schedule. Once you pay reliably over a reasonable period (which can be as short as thirty days, depending upon the generosity of their credit arrangements) you’ll be able to receive bills at more extended intervals, and even to use their payment schedule as a source of credit. Meanwhile, if one of those suppliers belongs to a credit reporting bureau, it may already have had occasion to file a report on you – either good or bad. In a short time, you’ll have established a credit record, which will largely determine your ability to borrow from suppliers as well as from banks.
That in turn means you must carefully monitor your standing with the credit services. Such organizations are numerous, ranging from people who simply list bad checks, through local merchant credit services, to the big names like Standard & Poor and Dun & Bradstreet. If you are ever denied credit, you are entitled by law to know what credit service down-rated you, and then to demand from that service a copy of your credit file. If there’s a false mark against you – and that happens with even the best and biggest companies – you have to get it removed, even if that means suing.