What You Should Know About Business Credit
As a small business owner, you may have sought or may need to seek financing. However, if you haven’t built your business credit, you may find it difficult to gain financing. Therefore, these are some things you should know about business credit.
Why Build Business Credit?
A strong score allows you to qualify for all types of business financing, from loans and credit cards to lines of credit. In addition, the higher your score, the better your rates, and financing terms.
Because business scores are available to the public and not protected by personal privacy rights, everyone has access to your score. Therefore, new vendors can check your credit before they work with you. Based on your business credit, they may choose not to work with you or give you unfavorable terms.
Finally, good business credit can help you secure financing when your business is struggling or experiencing unexpected expenses.
What Is a Good Score?
Unlike personal credit scores, which range from 300 to 850, business credit scores only range from 0 to 100. Therefore, a strong score is anything above 75. However, if your score is above 50, you may still be approved for financing with most institutions. If your score is under 50, you may have difficulty gaining financing.
What Impacts Business Credit?
Your business credit is based on your industry and company risk. It is also affected by your payment history over the last year, including the number of late payments you had. Any credit you applied for or opened in the last six to 9 months also affects your credit. Finally, credit agencies account for the number of years you have been in business.
How To Build Business Credit
Building your business credit is not a quick process. However, these are a few steps to get you started. First, be sure your business is a legal entity, such as a corporation or LLC. Filing for a business license also protects your personal assets.
Second, open a business bank account. Completely separate your personal and business accounts by paying your business expenses out of your business account. Then, apply for a business credit card, but make sure you make your payments on time. Consider setting up autopay, reminders or schedules to remind you of when your payments are due. Over time, you may apply for loans and additional credit cards or increase your credit amount.
How to Maintain Business Credit
Regularly pull your credit report. If you find mistakes, get them corrected immediately. Then, focus on paying down outstanding debts.
These are just a few things you should know about your credit. As you focus on these small actions, your business credit score will increase over time.