Building Business Credit for the Future of Your Business
- June 26, 2019
- By Aidan Dwyer
As a small business owner, you know the tasks and goals you set out to accomplish on a daily basis. From budgeting, managing employees, conducting payroll, a business ownerâ€™s obligations never end. One thing that commonly comes to mind is finding strategies for building business credit. Below, we explain the importance of your credit score to your business. Also, here you can find some ways to fix your business credit.
Business Credit vs Personal Credit
As a business owner, you have two types of credit: business credit and personal credit. Personal credit is the credit that you have accumulated through any sort of debt that you have personally taken on.Â Everyone participating in the economy has some sort of personal credit. If you have any credit cards, you definitely have a credit score. Personal credit will be a single number: your FICO score. It is an aggregate score that looks at a variety of factors. These factors include the length of your credit lines and your payment history.Â
Business credit is credit that your business has accrued as its own entity. Business credit does not have a centralized score like personal credit. The credit bureau report and scores credit use their own methods. General speaking, while measuring business credit remains in fewer variables. This facilitates the ease for one to improve their business credit scores.
However, when it comes to legal protections, then it becomes much harder to challenge discrepancies. As a result, many small business owners rely on their personal credit to run the businesses. This can put business owners at risk personally if the business hits a rough patch. At this instant, the businessmen will become personally liable for debts that their business has taken on. Building a strong business credit score is essential as it separates your personal credit from your business credit. This helps to protect you personally from credit woes that your business takes on.Â
Why Does Your Business Need Credit?
You may ask yourself, why does my business need credit? The personal and business finances of a businessman remain in a single state. Thus, Building healthy business credit can help separate the two. Business credit is vitally important to the growth and financial health of your business. If you are able to build and establish good credit, it can lead to lower premiums on insurance. Consequently, this could lead to lesser interest rates on capital financing.
How to Build Business Credit
Building business credit is a process that takes time, it’s not going to happen overnight. Luckily there are a few easy methods to help get the ball rolling.
Legitimize Your Company
First, establish your business as a legitimate entity. This means you should take steps to obtain legal documents. It may include a Federal Tax Identification Number, Business Social Security Number, and Business phone number. You need to provide a Phone number as a legal entity to officially Incorporate your business. Credit cannot be established without a fully-fledged business.Â
Establish a Business Bank Account
Secondly, open a business bank account in the official business name. This, should be the first thing that you do before startup. You should use this bank account to pay any and all bills that your business incurs. Paying your bills on time or early shows that your business is reliable and can pay off debts.
Maintain Relationships with Vendors
Thirdly, Building and maintaining relationships with vendors and suppliers is one of the best ways to improve credit. Maintaining relationships is more important if those vendors and suppliers report to the credit bureaus. The key to maintaining these relationships is to pay off debts in a timely manner.
In Short, having a good credit score opens up a world of financing opportunities for your business. REIL can suggest ways to increase the credit score and provide referrals for endless opportunities. See what financing options might suit your business best, click here: