Building Credit
Here is some very powerful insight from the credit industry about how we should position our organizations for rough times. Many small businesses just do not understand the importance of a strong credit relationship. We need to have a very deep relationship with our banker and vendor partners so we have some breathing room to grow. Way too many think credit cards are the answer – and they are the absolute worse answer to this need.
Rule #1 is to establish a banking relationship and build your credit history. Have a line of credit and use it some, making sure to make all payments on time. DO NOT pay things off way early as that does not create a credit history. Pay it when due, but not way early.
Rule #2 is to do the same with a vendor partner. Work to get a line of credit with them and pay on day 29 or 30 if you get net 30 terms. Don’t pay on day 31, or day 25, pay right on time EVERY TIME.
Rule #3 is that once you have this established with your key bank and vendor, expand it to others. Get a small line of credit with another bank and establish a line of credit with other vendors. This is not in order to spread purchasing and financing but rather to build a broader credit history. Make occasional purchases from your second and third vendor partners and put a little on a credit line at a second bank. Be up front with all this with your main finance partners so they are completely in the loop.
When times get tough, you may face a shrinking credit situation at your primary lendor and vendor. Having secondary relationships may be critical for you to continue normal operations in times when the economy is tough. It is too late to do it then. This has to happen when you are doing well and there is time to build your credit.
That said, do not even think about it if you cannot discipline yourself to pay on time EVERY time. Bad credit builds up just as much, or more so, than good credit. The last thing you want is to create a series of bad credit history postings. But, if you are a good money manager, this is an area you can create a very strong advantage against most of your competition, as well as position yourself for success in down times. It has to be done when you can absolutely perform, but it can really put you on top when things get tough.
