Just like a person, a business its own credit score, known as business credit. It is a track record of the business’ financial responsibilities which investors and financial organizations use to determine the creditworthiness of a business. While there are numerous methods of calculating business credit, the end result is a rank running from 0 to 100, popularly known as the credit score. The higher the number, the lower the risk of lending money to your business and the more likely your business is to acquire credit. As a rule of thumb, maintaining a score above 80 is healthy for any business. Different agencies have different ways of assessing business credit but they all come up with a business credit report, which will reveal and assess accounts, lenders among other ways that your business handles its finances. There are several factors that affect your business credit including:

Invested Capital

One of the factors that banks and financial organizations heavily consider during loan evaluation is how much of our own financial assets you have invested in the business. The consideration is usually more favorable when lenders feel you have invested a reasonable amount in the business.

Creditworthiness

Some of the tools that lenders use to determine whether or not your business and the owner can be relied on to repay a loan are credit reports of the company those of the owner(s). They consider also how long you have been in business, and how profitable your venture is.

Credit Capacity

Before lending, suppliers, banks, and lenders want to be confident about your ability to repay on a business line of credit. A business with positive cash flow, a positive repayment history with other businesses and banks and extra cash reserves is considered to have a high credit capacity.

Collateral

This has always been a major factor in giving and denying loans. The property, equipment, stocks and bonds, real estate and other valuable assets you offer to cover your loan give a lender the confidence that even if your investment failed to return, you can repay the loan by selling the outlined assets.

The viability of your business plan 

Before lending you money, lenders want to know that your startup business offers a product or service in demand and how you will handle your expenses, marketing, and the competition.

That said, strong business credit can help your business grow and has much more benefits than just convincing lenders that you will give their money back. For a startup, it is usually easier to pay for expenses from personal accounts and credit cards. While this works, it’s in your best interest to create separate accounts for the business and grow business credit. As the business grows, you will realize some benefits of having business credit, such as:

Drawing the line between personal and business affairs

With business accounts separate from the owner’s it will be easier to track business expenses. It saves you from having to highlight items on receipts when your purchases combine personal and business. While the initial business credit is based on your personal credit score, this will change over time and as the business builds its own credit score.  By separating the two, the success of your business will not be tied to your personal credit.

Better Loan terms

As a rule of thumb, better business credit means you stand a better chance for loan approval as it gives you more negotiating power. It is leverage with which, when used wisely, you can get approved for higher loan limits and enjoy lower interest rates, all without having to put up your business or personal financial assets.

Rewards

With business credit cards, you have a great way of earning your business dollars’ worth of bonuses, simply by spending. These rewards come in different types from which a business owner can select the one that best suits them. For example, cash back and shopping card rewards can be used to make more business purchases.

More Financial capabilities 

With a strong business credit, you can finance even the heavy purchases that your business needs to make to progress. The business can also acquire stock on credit to repay after making sales, usually at a fairly low-interest rate. 

Without a good business credit profile, it becomes hard to access funding and working capital which limits your success. While you may not need the business credit to operate, it serves as crucial leverage to securing business funding and grow your business. The fact that it keeps the owner and the business as separate entities give you funding without being required to provide a personal guarantee which translates to being approved for credit with no personal liability. In case you are ever in default, creditors will not come after your home or car. Additionally, having business credit adds more value to your business and gives it a credible appearance among partners, stakeholders, and customers. Potential buyers of the business also see value and the financial worth of your business increases. Finally, strong business credit gives you security and the ease of running your business with capital that is readily available. 

Your business credit is an important indicator of its fiscal health and with all the listed benefits and importance listed above, one cannot help but wonder how to build business credit. There are several practices that establish and improve your business credit, which, the earlier applied, the better. To begin with, it is ideal that you establish your business as a separate entity from its owner(s).  Be a god borrower; make payments on time, but don’t take too much. Check your personal and business files for errors, inaccuracies or anomalies. You have spent resources and time to build your business credit, and it is only fair that you keep an eye on it.

At Advanced Credit Therapy, we work to build or restore your business’s financial freedom from every possible angle. We are a talented, passionate team of professionals who work to help you restore, build and monitor your credit. We help achieve all your realistic financial goals for your business, easy and fast. Don’t let business credit keep you from achieving your dreams. Do the best you can for the future, now.