Understanding Business Credit: Why Do You Need It
What is credit? Simply put, it is the name given to money that you can borrow for now and payback for later in your personal capacity. You may be familiar with it if you’ve got a personal credit score.
What if there was a way that this could be replicated for businesses? Turns out business credit is a thing. If you are running your own business, you will need to get familiar with business credit, building it as you go. You can safely put away your personal credit in this instance, choosing to rely wholly on business credit.
Business Credit – Why It’s Important?
As an individual, you have the option to borrow money from lenders for your personal use. So why not do the same when running your business?
Before you take out some money for your business, let’s take a look at some of the things you ought to keep in mind:
Keep your personal and business finances separate.
This goes without saying, but a lot of people are not aware of how keeping the two apart can help you out in the future. If you are looking to get a loan to start a new business venture, you need your Social Security Number to apply. Lenders need it so that they can pull out personal credit reports and see your financial history. If your personal credit has any ‘problems,’ it might make it harder for you to borrow money for big-ticket items like a car or house.
In fact, assuming it all goes well, running a business can affect your capability to borrow as an individual. And you don’t want that since you need to provide for you and your family. This is important to note since lenders tend to evaluate how many loans you can take based on your income and any debt payments. This is why it’s important that your income doesn’t max out when borrowing for business purposes.
You also need to have business credit for one more reason. Lenders typically require a personal guarantee unless you have business credit. This means putting your home on the line as collateral for the loan, and it can prove to be disastrous.
Get Better Terms
You know what makes it easier to operate your business? A dependable business credit score.
Your suppliers will let you schedule your repayments for longer periods of time if your business credit score is good. And you get to have more choices. Quality firms will want to work with you.
Get Better Financing Options
If you have strong business credit, chances are that you will be paying a lot less when for the loans you borrow. This is because loan pricing is based on risk. The stronger your credit rating, the lower your finance charges, and interest rates. You get to enjoy more leeway and breathing room in your business, plus your profitability goes up.
Increased Sales
Believe it or not. Your business credit score can attract more potential customers. This is because customers want firms that can deliver and honor their orders. Your credit score basically tells them how tight your operation is.
Business credit scores are publicly available, unlike personal credit scores.
Conclusion
There’s no reason why you shouldn’t opt for business credit for starting your operation. Not only does it help you get favorable financing terms, but it also results in more goodwill for you amongst potential customers. Customers can easily gauge how trustworthy or reliable a business is, be it in terms of them following through with suppliers, honoring your delivery times, and more.