When Nav conducted a survey of small businesses in 2015, 82% of respondents didn’t know how to interpret their credit score, while 45% were unaware that their company had one in the first place. Despite that, credit is essential to business success at all stages of growth.
Even if you’re still in the process of establishing your organization, it pays to start with a positive credit rating. As you may already know, business credit is not all too different from personal credit. It’s a track record of your financial responsibilities that determines whether your company is able to honor the terms of a specific agreement.
Your business credit score is calculated by numerous agencies and is typically represented as a ranking between 0 and 100, with higher numbers correlating to lower risk. You have a range of options when it comes to establishing business credit and maintaining a good score. But why should you do it? Consider the following four reasons.
1. Separate Personal and Business Finances
Unless you take the necessary steps to separate them, your business credit will be linked to your personal credit. Creating a clear distinction between the two ensures that one cannot negatively impact the other.
In doing so, you can prevent any personal financial obstacles from standing in the way of growth in your business. This is also true the other way around. If your business faces any difficulties or setbacks, your personal credit won’t be affected.
2. Reduce Expenses
Establishing a business credit score has numerous implications for your cash flow. This can include reduced rental terms, insurance premiums, and credit card rates. Vendor and supplier agreements can also change to better accommodate your budget. Another potential benefit is lower financing costs, which can help you obtain assets earlier.
3. Eligibility for Financing
Banks, investors, lenders, and other companies will be instrumental in facilitating growth throughout the lifespan of your business. These organizations rely on your creditworthiness to determine not only the terms of your agreements with them but also whether or not to they should do business with you at all.
It’s easy to underestimate just how important this is. The Small Business Administration does a good job of driving the point home, rating insufficient or late financing as the second most common reason for business failure. Your interest rates, insurance premiums, loan terms and payment periods with suppliers are all affected.
4. Peace of Mind
It goes without saying that running a business is stressful enough on its own. The last thing you want is to worry about your personal credit score being affected by an issue in your business. The same is true for your ability to take the necessary action during times of financial difficulties, such as ensuring you have enough stock or obtaining an investment.
By ensuring that your business has a strong credit rating, you can focus on other tasks and move forward with peace of mind knowing that your finances are in good health.
If you haven’t already, now is the time to establish and build your business credit score. The benefits of building your business credit score are worth the effort.