Why Is Business Credit Building So Important?
Both business and personal credit carry the power to help determine present and future financial goals. By having strong business and personal credit scores you can qualify for lower interest rates and larger lines of credit. This means that during seasonal cash shortages, when receivables are slow to be paid, or when investments are needed for growth – you can reach to a line of credit or loan to help with cash flow.
There is a learning curve when it comes to establishing, building, and maintaining your company credit scores and reports. If access to affordable financing and capital is a part of your business plan, learning how to understand and build business credit scores should be a priority.
The business credit industry is highly unregulated; this means that anyone, including potential partners, lenders, and competitors can purchase a copy of your business credit profile at any time without your knowledge. An established business that has been operating for years may think that they automatically have business credit. This is not always the case. In fact, whether your business is 1 or 20 years old, you can experience the adverse effects from not building up the profiles. The reason for this is that not all vendors/creditors report to the business credit bureaus or may only report to one, this will cause your payment experiences to go unrecognized in the eyes of the business credit agencies.
“A non-existent business credit profile or a business credit profile with little information will increase your likelihood to be denied for business credit cards, equipment leases, much-needed financing and even potential partnerships.”
Proper Business Credit Building Practices Are Often Overlooked
Since not all vendors, lenders, and creditor’s report to the business credit bureaus, companies can develop a strategic plan that will incorporate working with creditors who report and making it a priority. When firms fail to develop a plan for their business credit, they can end up causing damage to their reputation and potentially reflect an inactive business. If an interested party pulls your reports and finds an inactive company, you’ll appear to be a higher risk and may get denied or face extremely high interest rates (20 – 40%+ bad credit loans).
In many cases, business owners use their personal credit to run the daily operations of their business. This is very common but should be used as a vehicle for building business credit rather than the solution for accessing credit. Another benefit to separating from your personal credit/assets is liability and the possible destruction of personal credit scores. There are many loans, lines, leases, and business credit cards that allow newer companies to open the account using their SSN but only report back to the business credit bureaus, we often suggest this as one of starter steps in building business credit. There are steps a firm can take to begin the process of building business credit on their own, but in order to be prepared for growth opportunities, reach out to us to speak with a credit expert.
Nate owns a construction company, during the recession his business suffered immensely and he ran into severe financial issues. He was forced to lay off several of his valued staff members and fell behind on accounts with suppliers with whom he had developed great relationships. The only reason Nate was able to stay afloat was due to his larger, more regular, clients. After the economy picked back up Nate saw an upswing in revenue and decided it was time to rebuild his once flourishing business. In order to begin landing new, larger accounts, he knew that he had to make right with his suppliers. Nate came to find that his suppliers were no longer willing to offer him payment terms; he had gone so far beyond terms that his delinquencies had turned into judgments against his company. His business credit was butchered leaving him with few options for obtaining good payment terms, let alone landing larger accounts. After working tirelessly to speak to his suppliers and the bureaus nothing changed – he could not even make contact with any rep at Equifax. Nate feared that if he did not take action his business would backtrack to where it was in 2009. During his Google searches, he recalled our company and decided the best course of action was to reach out to a business credit specialist. Nate took a leap of faith. Within 90 days we were able to remove 80% of the accounts impacting each report and we helped him rebuild his once healthy profiles with the right accounts and information. Nate’s business credit was back on track.