What does Compliance mean and how does Compliance work?

Compliance is a major risk, if seen from the creditor’s point of view. The main concern of creditors before issuing credit to any business is to make sure whether the business is worth the risk. Business credit rating agencies gauge the credit worthiness of a business with the help of compliance checks.

Given below are a number of factors that affect the credit compliance of a business-

1. The Business Plan:
A professional and complete business plan is a must before seeking business credit. In the credit market, it is known that if an entrepreneur is serious about his business then he has to have a thorough plan of action planned out. Every aspect of the business should be planned, right from the initial step to the marketing plan.

2. A separate Business Bank account:
Many small businesses fail to take the simple step of maintaining a separate business bank account. The intermingling of business and personal finances sends a red signal to the creditors. Intermingling of personal and business funds indicates that a person is not wholly committed to the business. At least one business bank account is essential before beginning to build business credit. There should be sufficient balance in your account so that checks get cleared as too many returned checks might reduce your chances of being approved for a business loan.

3. A Business Address and Business Phone number:
In order to save money, some people might run their businesses from home and either use their home phone or a P.O. Box for communication. A P.O. Box makes your business look suspicious. Using your home address as your business address can also cause a great deal of damage as running a business from home might create a feeling of non-commitment in the eyes of the creditors.

4. An Employee Identification Number:
Applying for an EIN will increase your chances of getting a loan as you send out a message that your business is serious business and not a hobby. EIN is the federal tax identification number and make sure to apply for the tax identification number of the state your business carries out its operations in.

5. Directory Listings:
Creditors are bound to look at your directory listings as it is yet another way to verify the authenticity of your business. Thus, directory listings are important, do not overlook them.

6. Permits and Licenses:
Make sure that you obtain all the permits and licenses required to operate your business. Not having even one of these licenses can make a bad impression on creditors.

7. Financial Statements of the business:
The credit worthiness of your company to a great deal depends on the financial statements of the business. Generally the balance sheet and the profit and loss statement of the last two years is seen but if your business is new then the books are seen from the time you started the business.

The above factors might give you an idea about the problems to be tackled before applying for business credit.

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