As you continue to run your business, having access to additional capital will help your business grow and at times, will even help your business stay affloat. That’s why it is important to begin building business credit early. Even if you do not need a loan or line of credit right away, having access to financing and using it wisely will help establish your credibility in the eyes of lending institutions.
Separate personal and business credit.
It’s no secret that when entrepreneurs first launch their businesses it is typically done through their personal finances. But once you’ve got your business in operation, it’s important to stop relying on your personal credit. Here’s why: if you continue to use your personal credit on business expenses, you will only be making payments that can be reported to your personal credit history.
In addition, it is important to protect your personal credit from business losses. If you are using personal credit to finance your business’ operations and you are unable to make payments because your business is facing a hardship, you will be personally liable.
But by separating the two, you can begin building your business’ creditworthiness with lending institutions and protecting your personal credit history.
It takes time to build business credit.
Many experts argue that it takes one to three years to build business credit. Lenders want to see that as a business, you’ve got a checking account with a running balance. They are also interested in how you pay vendors. Utility companies, for instance, report business payment history to business credit bureaus consistently. If you pay your business’ phone and electric bills on time, you’re on the path to being worthy of credit. But, if you can’t pay your rent or utilities on time, this may be a red flag for lending institutions.
Established business credit holders have more lending options.
By establishing credit early on and keeping it in good standing, your business will have greater access to capital in the future. In addition, with established credit, you’ll be eligible for the best interest rates, which will help you retain your profits.
What does this mean? You’ll have access to business lines of credit, credit cards and small business loans.
Having access to lending products could make it possible for your business to expand, lease equipment, or in times of hardship, cover immediate expenses. However, if you wait to establish your business credit and you are presented with a business need that requires additional capital, the lending products available to you may be limited or even worse, at higher interest rates.
Builiding your business credit is important to the life of your enterprise. By establishing your business with a DUNS number, you’ll begin to report your payment history to business credit bureaus. If you remain steadfast in your repayments, you will be able easily improve your business’ ability to be successful through various funding sources.
While borrowing may seem risky, remember that in order for your business to grow, it is important to take calculated risks that will help you expand.