A lot of business owners are surprised to learn that just like they have a personal credit score, their business does too. Business credit is a track record of a business’ fiscal responsibility. Investors, financial organizations, and other companies use this business credit profile to determine whether your business is a suitable candidate for loans or a partnership.
Every business at some point has needed funding so that they can expand and continue to grow their operations. If you are looking for funding for your business or expect to be getting funding in the future, then you will want to start building business credit.
Why is having business credit important?
Having a good business credit score is important because it enables you to get funding for expanding and developing your business. Generally, if you want to get a loan with a good rate, you must have a fairly decent credit score.
Building business credit is also important because it separates the business owner’s personal credit history from the business. Many small business owners use personal credit to run their business. However, doing so could put you at risk if your business is ever in trouble.
By building building credit, you protect and solidify the asset and liability protection granted to you through incorporation.
When you have business credit, if your business takes a big hit, your personal credit history will not be in jeopardy. When business owners have a business credit history separate from their personal one, they can have peace of mind knowing that their personal credit scores won’t suffer.
How does business credit work?
You probably have a good idea of how your personal credit score is determined. But, how is your business credit score calculated? Is it the same as your personal credit score?
- To have separate credit, your business must be an LLC or corporation. This makes your business an entity separate from you. Sole proprietor’s credit remains exactly the same as the business’s credit because you are legally the same entity.
- Business credit is scored differently. While your personal credit is scored from 300 to 850, business credit is scored from 0 to 100. If you score more than 75, you have a very good business credit score.
- The way your business credit is scored is based on how your suppliers report your payment history. They have no legal or ethical obligation to report this information to business credit bureaus. So, if it’s a smaller supplier, they may not report the information at all. If you want to establish credit, it’s up to you to make sure the supplier you pay reports your transaction information to the business credit bureaus.
What Advantages are there to having A+ business credit?
By obtaining a more favorable credit score, you’ll lower the interest you pay on loans and leases. It’ll also be easier to qualify for a loan as lenders are hesitant to lend money to businesses with poor credit history
Additionally, you’ll receive more favorable terms from suppliers. This will be helpful when it comes time to purchase additional equipment and inventory as you’ll be able to purchase those thing on credit. If you have a great credit score, suppliers will be more comfortable in forgoing prepayment and allowing you to purchase on credit.
Last but not least, having good business credits gives you access to cash for growth and expansion. That’s the goal of every business right? To grow. Well, the bigger you grow, the more money you’ll need. Having the ability to take out a loan for a business expansion project will allow you to grow your business larger.
4 Simple Steps You Can Take to Establish Business Credit:
- Form an LLC, S-corporation, or C-corporation (if you haven’t already)
- Apply with the IRS for an EIN number
- Make sure at least some of your suppliers report your transactions to business credit bureaus
- Pay your bills on time. Just like you do with your personal credit, you establish business credit with a good payment record. Whatever bills your company has to pay, simply pay them on time or negotiate repayment plans with creditors.
When you use Inc Authority to start building business credit you’ll be enrolled in our BizCredit Express program, designed to help you build business credit rapidly for your new or existing business.
Along with this, you’ll get a dedicated business credit coach who will register and set up your business profile with Dun & Bradstreet and Experian Business. Your personal credit expert and proprietary web tools will help you maximize your credit score and profile with major business credit reporting bureaus.
With our simple process, you’ll start building A+ business credit in as little as 90 days, with easy access to business loans, credit lines, and working capital.
For more information about business credit, contact an Inc Authority representative today at 1-877-462-6366, Monday thru Friday, 8 am – 5 pm PST.