Credit can be defined as the ability to borrow money. The concept is definitely one we are all familiar with since personal credit is analyzed when borrowing money from a bank. The exact same thing comes into play when looking at a business.
Every single business owner needs to be familiar with business credit. Building it is very important for future growth.
Why Is Business Credit Used?
Most people think that they do not need to borrow money as a business since they can do this as an individual but this is not actually the case. Why do people choose business loans then?
- Keep all things separate
Separating business and personal finances is really important. The new business looking for a loan normally does so through the individual, with the personal credit report of the owner being analyzed to determine personal creditworthiness. If problems appear, they will go on personal credit reports. When you use business credit your own finances are taken out of the equation. Basically, your personal finances and business finances are kept separate.
- Good terms
When you have good business credit score you will find it much easier to operate. The suppliers give you more time to repay loans and extra choices are made available.
- Better financing
As you borrow money, if business credit score is high you receive better interest rates. The loan pricing will normally be based on determined risk. If you are highly likely to repay the loan, interest rates are lower. Basically, when you have good business credit profitability is automatically improved.
- Increased sales
Credit is not just about borrowing money. Great business score can impress customers since they are interested that you can deliver on orders placed. When business credit score is high, your operation is evaluated as dependable. Remember that business credit can be seen by anyone since it is not confidential.
How Can You Build Business Credit?
When you want to build business credit you take a really similar approach to when you want to build personal credit. The main thing to remember is you want to always pay on time. Besides this, you should also remember the following.
- Get legitimate
In order to start a legal business credit profile you need a business. It is important to separate business and personal affairs. Check the laws in your country and see what official identification numbers are needed. The best thing you can do is to hire an attorney that is going to help you to get 100% legitimate.
If it is possible, get a credit card, a credit lane or a small loan, all in the name of the business.
- Get credit
One thing you might not know is that credit does not necessarily need to be obtained through a loan. Credit can also be gained as you work with your suppliers. The idea is to buy with the use of credit. This quickly offers services and goods while you pay at a later time. You can use this for so many different services. As you pay within one to two months, you get credit.
Whenever possible, work with those partners and suppliers that are reporting credit to the business credit bureaus. When they do not report, add trade lines in your own report as references. Be sure that you pay on time, early when you can, and increase credit score.
- Monitor business credit
You do want to work hard to build business credit. Information needs to be provided to credit bureaus and you have to be sure that the information they have about the company is accurate. This means you need to review credit reports and you have to do it periodically. Whenever errors are found, they have to be fixed.
When you launch a business it is really important that you fully understand business credit, how to use it and how to grow business credit score. If necessary, get help from an attorney and an accountant.