Entrepreneurship is a dream that many young people in India harbour these days. Recognising the need to support the new wave of entrepreneurship there are many programmes, incubators and contests that serve as a launch pad for many a young entrepreneur who is offering a unique service or product. But while you are likely to find mentors who will take you through the basics of business, there are certain things that you need to do on your own. One of the basic things to do is to build good credit that will not only help you establish your business but will keep you in good stead as you grow. Here are some useful credit tips that you can use if you are a new entrepreneur or harbour aspirations of becoming one soon.
The fundamental error that most entrepreneurs make is that while they have a good knowledge about personal credit, they seldom know the importance of building good business credit and know that there is a need to improve your CIBIL score on that count as well. As an entrepreneur or a business owner you are expected to need at least 10 times more credit than a consumer. It is therefore necessary to know the difference between personal credit and business credit and from the very inception build your business credit from scratch.
Create a separate business identity
You may not be able to make large expenses from the beginning, but make sure you create a separate business identity right from the very start by making a separate bank account for business purposes. Even if you are using personal funds to fund your new venture, transfer it into this new account and carry out all business transactions from this account. Not only will you have created a separate financial identity of your business, a business account will help you track your money better as well.
Get a business credit card
Another mistake that new entrepreneurs make is that they use their personal credit cards to fund the expenses of their business. This is another critical mistake. As an entrepreneur you must apply for a business credit card as soon as you have established the business identity of your company through a trade license or the likes. Business credit cards are extremely useful to young entrepreneurs as they come with higher credit limits. Not only do you make urgent payments related to your business through such cards, it becomes convenient to purchase supplies and equipment on such cards as well. Choosing the right business card is what you need to focus on. Make sure you compare the various options available and choose the one that is best suited to your company profile and needs.
Build good business credit history
You are already in the know of the fact that in order to increase your credit score on the personal front, you need to have good credit behaviour. This holds true in case of your business credit as well and you need to make constant and continual attempts at enhance credit score. This you must do by making timely repayments on your business credit cards and servicing any business loans you have taken as stipulated.
Build an emergency fund to make continual repayments
Timely repayment of your business loans and credit cards should be of primary importance to you in order to build business credit. While most of the money you make will need to be directed towards the enhancement of your business, keep some of it aside and build an emergency fund that will take care of your debt payments on a rainy day. As a business owner you should know that conditions may not always remain conducive. At such times, you should not allow yourself to come to a situation where your lenders pester you for collection or your assets get seized. Needless to say it will hurt your company credit profile.
Keep track of your CIBIL company credit report (CCR)
When you are an entrepreneur who has built a separate business identity and are using a business credit card, your credit history gets recorded in the CIBIL company credit report (CCR). While CIBIL does not give you a credit rating, your business credit profile is tracked through it. You should not only maintain a good business credit profile, you must keep track of your CCR just like you check your CIBIL report periodically. You must ensure that all the financial transaction you are making are in order and are being reported correctly in the CCR. Do bear in mind that this report plays a critical role in the loan approval process when you apply for a commercial loan, so you need to ensure that it in order at all times.
Beginning a business is hard work, but when you put in this bit of extra effort to ensure that your business credit profile is in place, it definitely ensures that your business keeps running like well-oiled machinery.