You probably already know how important it is to build good personal credit, but what about business credit?
Building business credit will help you prepare your business for the future. Every business needs financing at some point, and good business credit will help you get the financing you need at lower interest rates.
Learning how to build business credit is very valuable knowledge that you and your business need.
Let’s take a look at why business credit is important and how you can improve your business credit.
What is Business Credit?
How does business credit differ from your personal credit?
Business credit is a very similar concept; however, it is separate from your personal credit score.
Essentially, business credit represents your company’s ability to pay off debt on borrowed cash or assets over time. It demonstrates that you are a reliable borrower and can be trusted to repay what you owe.
With personal credit, you are borrowing money against your own finances. With business credit, you are borrowing money or assets against your company’s finances.
Having strong business credit can help put you in an advantageous position when applying for loans from various lenders.
How to Build Business Credit
Learning how to build business credit is fairly easy but may take some time — just like building your personal credit.
To build business credit, you can:
- Take out a small loan and make timely payments
- Apply for a business credit card
- Buy goods and services from vendors on credit
Building business credit is much like building your own credit. Essentially, you simply need to borrow money in the form of credit or loans and make timely payments over time. As you continue to do this, your business’ credit will improve.
In addition to building your credit, taking out small loans and getting a business credit card to finance your business will help you access quick financing. Credit cards may also give you access to generous rewards.
Why Business Credit is Important
What is the point in building business credit? Can’t you just rely on your personal credit to apply for financing?
There are a number of advantages that make learning how to build business credit a priority.
- Personal Finances vs. Business Finances
First, it allows you to separate your business’ finances from your own. If your personal credit is in poor shape but your business credit is strong, you’ll still be able to access financing for your business with friendly terms.
Moreover, applying for business loans with personal credit could ruin your credit history if you aren’t able to pay it back in full.
Separating your personal finances from your business finances will help make sure your company or personal life isn’t affected if the other is struggling financially.
- Struggling to Get a Loan?
Perhaps the most important benefit comes when it’s time for your business to apply for financing.
Every business relies on financing. Purchasing machinery, furnishing your office, hiring employees, purchasing property, expansion plans, etc. — these aspects of running a business can be costly.
Most businesses, particularly small businesses, don’t have the capital to finance these ventures on their own. As a result, they have to pursue financing from lenders.
Without strong business credit, you might find that the only loans you can get have high-interest rates, require collateral, and have undesirable terms.
In order to borrow the money you need to finance your business ventures, you need to focus on building your business credit.
Are you having trouble getting approved for the financing you need?
Start building your business credit today to make getting a loan much easier. At the end of the day, you’ll realize that doing so will bring you nothing but benefits.
Are you ready to start building business credit?