Improper handling of your books will have a significant impact on your business credit. If your business credit begins to suffer, you will find it next to impossible to acquire financing for your business and you may end up using your personal credit to secure business loans.
What makes up your business credit?
Business credit is provided to the credit bureaus from your vendors. When you order goods and services from them and you pay in a timely manner, they will report positive information to the credit bureau, allowing you to have a higher business credit rating. The business credit rating will secure the "loan" you take from vendors when you purchase the products. Since you are given the products with the promise to pay later, your business credit is used as collateral to reduce the risk to the vendor.
What can be acquired with business credit?
When you use your business credit to acquire loans from vendors, you can use the money for anything that is business related. Typically businesses use the money to purchase machinery, equipment, supplies, raw goods, uniforms, and just about anything you need. In addition to using invoicing from some of your vendors, it is advisable to seek small business loans as they too can help to build your business credit and you typically have the option to purchase more materials with these loans as you are given a set limit that you can expands if needed.
Business credit reduces risk
One of the great benefits to business credit is that it will reduce your risk. Since your personal credit may not be the best, you don't have to worry about using it to gain approval for the loan in the first place. You also don't need to worry about losing your assets in the event that you are unable to pay the loan because it is under the businesses name. If you choose a non-business credit check for a loan, you will need to use your personal assets to secure the loan and you are faced with a difficult decision of using your personal savings or finances to pay for the business needs. Since the recession, many lenders are now requiring personal assets or guarantees on the loan. This is due to the fact that thousands of businesses went bankrupt and defaulted on their loans.
Acquiring business credit
In order to acquire business credit, you will need to follow the same procedures as personal credit. This means you need to fill out a credit application and wait for it to be approved. Depending upon the business credit rating and the length of time you have been in business, you may need to include your personal information. Even if they do not use your personal credit to secure the loan, it can give them a better idea as to how you will manage the business finances.
Each lender has different restrictions regarding business credit so it is important to fill out multiple applications and talk to several different lenders until you are able to find the best lender for your situation. Check with local lenders and lenders that you have personally or professionally worked with as they usually provide you with your best chance to acquire financing. If you have bad personal credit, look into working with online lenders. Many of the online lenders do not have the strict lending limitations as you may be able to easily acquire the financing you need for your business. Business and personal credit are usually linked even though they are separate entities. Make sure you are monitoring your personal credit score to avoid dealing with loan rejections based on your limited or poor credit history.
Corporate Credit Concepts specializes in business credit. For more information about business credit and how it might benefit your business, please CLICK HERE for a free phone consultation.