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Why and How to Beef Up Your Business Credit Score

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Why and How to Beef Up Your Business Credit Score

By Caron_Beesley, Contributor
Published: June 25, 2012

Do you know your business credit score? Feel unnerved about relying on your personal credit score for business transactions? As a business owner, taking steps to separate your personal and business finances is a smart strategy. Obviously, this means implementing a strategy to build good credit in your company’s name.

What is Business Credit?

Business credit is much like your own personal credit score – it’s a proxy for your business’ ability to repay its debts. When you start a business, this type of credit may not be at the top of your agenda. But as you plan to expand and grow, establishing good business credit will be helpful if you decide to apply for a business loan.

Who Monitors Your Credit?

Business credit, also known as trade credit, is the single largest source of lending and is monitored by business credit bureaus. These bureaus gather data on trade credit transactions and produce business credit reports for the benefit of credit issuers. Credit is measured on a scale of 0-100, with a score of 75 or more being the ideal range.

Good Business Credit Can Open Doors and Bring Many Benefits

Establishing business credit is about so much more than trying to improve your chances of securing a loan. SBA guest blogger and business credit adviser, Marco Carbajo, offers these 10 reasons to start building credit in your business’ name:

1. Protect your personal credit ratings – With corporate credit, your business debts and financial obligations would be reported only on your company’s credit reports—not on your personal reports. As a result, your personal debt to credit limit ratio would not be impacted by the debts of your company.

2. Protect the corporate veil – By separating personal and business credit, you eliminate the risk of commingling funds – and this includes the commingling of credit.

3. Limit personal liability – By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.

4. Conserve cash flow – Many suppliers, businesses, and vendors will extend credit to your business with net 30-day to 60-day terms. This allows you to conserve cash while obtaining the products and services your business needs.

5. Limit accumulating personal debt – You can obtain financing for your company without supplying a personal guarantee. Funding programs like accounts receivable financing, trade credit, and merchant cards protect you from facing a lot of personal debt.

6. Maximize financing opportunities – Many lenders, creditors, and suppliers will only extend credit to businesses that meet their corporate compliance guidelines. This includes a business credit listing and ratings with the major agencies.

7. Build a business asset – A business with established credit history and available credit is attractive to potential buyers and investors. It improves the appearance of your business’ funding capacity and stability.

8. Limit inquiries – With business credit, you can stop relying on your personal credit to obtain financing, which limits the amount of inquiries being pulled on you personally.

9. Receive larger credit limits – You can obtain 10 to 100 times greater credit limits from lenders as an established creditworthy business than you can as an individual.

10. SAVE MONEY! Businesses obtain more favorable rates on lines of credit compared to an individual. For example, you may pay up to 13% interest on a $100,000 line of credit whereas a business could qualify for an interest rate of 7%. That would save you almost $40,000 in interest alone.

 What Affects your Business Credit?

There are many factors that affect your business credit score: payment history, the amount of credit you have available, the age of your credit profile, and even the frequency of inquiries made on your profile.

Steps To Build Credit

More than simply applying for a business credit card, there are some very specific steps you should take to properly build and manage your credit score. This blog explains more: 6 Ways to Establish and Maintain a Healthy Credit Score for Your Startup or Small Biz.

Remember: if you are a sole proprietor, you’ll need to incorporate your business first (this creates a separate legal entity for your business).

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About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

Caron, I truly enjoyed your blog post and I believe it will help me in my 'building business credit' endeavor. Would I be able to refer to some of this information (giving you credit of course) on my blog post?
I'm a little late to the party here but the advice in the article is timeless none the less. The best way to improve your business credit profile is to pay your bills on time. If you're fortunate enough to have the cash flow to meet your financial obligations you won't have to waste precious time worrying about your credit score and instead can concentrate your efforts on acquiring new customers and developing new products.
Limiting inquiries on your personal credit is an excellent point that most people don't think about. I have virtually eliminated all inquiries on my personal credit from my credit report by using business credit much more often. Great post!
Yet another fantastic article. Business credit is essential in the auto sales industry. We order most of inventory with credit and it needs to managed properly. Thank you for the great info.
I appreciate the benefit summary offered in the article. Unfortunately, the business credit development process is significantly flawed from the credit agency side of the equation. For the past seven months, I have subscribed to a paid service with D&B to ensure that my corporate information is accurate. I have worked to identify out-of-date information; I have also contacted vendors to comply with requests for references. I must add addendums of fact to prospective lenders to defend my credit worthiness against what this agency puts forth as truth. I am sorely disappointed that decisions for credit worthiness that can be made in less than a minute come from an organization that takes months to update, correct, validate or add pertinent information, data that, as you state, affects the business cost of capital. The SBA would be serving small business well by being aggressive with what appear to be obsolete organizations desperately attempting to catch up to a digital world. If ever there was a need to streamline, no, to revamp the approach to credit decisions, it has been the past four years. Still, as a small business person I am left with the skepticism I have had since the financial world mis-managed our assets in 2008. As a prospective borrower with creditors, I believe I am misrepresented by EVERY credit agency that a lender may contact. The personal burden to right the inaccuracies presented as fact by these organizations is an affront to the value of my time and my focus. An SBA program to effect QUICK change in the credit information companies is needed before we can believe that efforts on our part will be rewarded with valuable, timely data on theirs.
I am very ambitious about creating and managing my own small business and in relation to that, have been doing lots of researches on the options given by the allowance for a business credit. Thanks a lot,Caron, for providing so many useful links about this matter and being such inspiration for me!

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