From the moment we open our first bank account or get our first credit card, we are bombarded with tips, opinions, and information, from our family and financial advisors, on the importance of building personal credit.
Personal credit is of course incredibly important, but many business owners do not place the same importance on business credit.
Maybe you don’t know how to build business credit, but let me assure you, it is imperative in order to ensure the longevity and success of your business. Here are just a few ways in which a good business credit score can impact your business:
1. Increasing Credit Capacity
Building your business credit will allow you to request more credit capacity on your business loans or credit cards. This increased capital could come in handy when you decide to expand your business or have to deal with setbacks.
2. Increasing Company Value
Ideally, you probably want to own the business until you retire, or possibly even for the rest of your life. But there may be a time where you can no longer run your business and need to look into selling it. If your company has strong business credit, it is much more attractive to potential buyers. Even if you don’t plan on selling your business anytime soon, it is still a good idea to build credit in case you ever need to sell or bring on investors.
3. Getting Better Insurance
Your business will almost certainly need some form of insurance for yourself, your business, or your employees. Insurance companies will take into account your business credit score when creating your plans. A higher business credit score could get you better and cheaper plans from insurance companies.
4. Better Business Loans
There will probably be a time when you need to inject some capital into your business in order to get it to where it needs to be. You will likely need to get a small business loan in order to make this happen. A bad business credit score can run the risk of getting you outright denied from banks and other lenders.
That being said, even a fair business credit score will keep you from getting lower down payments, interest rates, and better plans. A great credit score will make you more attractive to potential lenders and will get you better terms when applying for a loan.
Business Credit: Illustrated
Let’s take the hypothetical case of Felipe Guerrero, who owns and runs a pizzeria.
Felipe has a problem with his pizza oven and must obtain a new one. Felipe knows that pizza ovens are quite expensive, so he will need to take out a small business loan to cover the cost. Unfortunately, he gets denied by multiple lenders due to a poor credit score. Felipe seeks advice on how to build his credit in order to get the loan he needs.
The first thing he needed to do was register his business, as that allows his credit to be more easily tracked. The second thing Felipe needed to do was open a bank account to handle the business expenses, as opening this type of accounts can give a boost to your business’s credit. The last and most important thing he needs to do is catch up on all loan and debt payments and to pay them all on time. This will go along way in increasing his credit score.
With these few steps, Felipe is able to raise his credit score to the point that he is accepted for a small business loan.
If you want to be like Felipe, you need to start building your business credit score right away. So don’t waste any time, start building strong business credit right away!