Plus, a 5-step plan to get your business started.
Plus, a 5-step plan to get your business started.
Many decisions made early on when launching a business will affect its ability to succeed and grow over time. A prime example is the decision to focus on building and maintaining good credit.
In some ways, business credit works similarly to personal credit. A handful of business credit ratings agencies will evaluate your business and produce a credit report and a credit score that provides a numerical representation of how likely your company is to repay the money it borrows.
Having a good business credit score indicates to lenders, potential business partners, and other stakeholders that your company is financially reliable and well-managed. This can benefit your business in several ways, including:
It can also make it easier for you to rent or buy office space, equipment, or vehicles needed to grow your business.
Even if you’re able to bootstrap your business with your own funds to launch, if you have plans to scale, you’ll likely need to borrow money at some point in the future. Credit allows a small business to increase their purchasing power (e.g., to buy extra inventory ahead of the holidays) or take advantage of business opportunities (such as purchasing a competitor).
Depending on the business you’re in, you may also need a line of credit throughout the year to help with cash flow during slow periods. More than one-third of businesses sought financing in 2021, with more than 60% of them doing so to meet operating expenses, such as wages, rent, and inventory costs.1
Having good business credit can also mean no longer having to put your personal credit (and your personal assets) on the line when you borrow on behalf of your business. Building this financial insulation between your personal and business finances is especially key in emergency scenarios or during unexpected events when you may need to borrow funds.
Keep in mind that building credit — as a business or an individual — is a process that requires both time and dedication. With that in mind, here are five steps to get you started building credit for your business:
Building credit is an important step for a growing business. One letting banks, lenders, and vendors know that your business is a viable, creditworthy partner.
For credit building and other business needs that fall outside the typical day-to-day, we can help you find a solution.
1. “2022 Report on Employer Firms Based on the Small Business Credit Survey,” Fed Small Business, Revised May 6, 2022, https://www.fedsmallbusiness.org/survey/2022/report-on-employer-firms
1. “2022 Report on Employer Firms Based on the Small Business Credit Survey,” Fed Small Business, Revised May 6, 2022,
https://www.fedsmallbusiness.org/survey
/2022/report-on-employer-firms.