Business credit is allusive in many ways. It’s not taught in school and it’s not highly touted in the media, when compared to personal credit. Therefore, many small business owners naturally don’t emphasize the importance of having a strong business credit score (or truthfully, any credit score at all). However, this negligence can literally be lethal for a business. Learn why having and building a business credit score is a MUST for any small business.
Business Credit Score: 3 Reasons Your Small Business Must Have One
1) Keep your personal score safe - One of the scariest things that can happen if you don’t have a business credit score is that you will have to rely on your personal credit score to attain credit lines, net terms from vendors, credit cards, etc. However, as businesses tend to have more financial variables and can easily find themselves in times of financial hardship, this ends up reflecting on the personal credit score.When you harm your personal credit score, it can affect some very basic parts of your lifestyle. You could be unable to rent an apartment, apply for a mortgage or even a credit card. Don’t let your business dealings affect your personal life. Attain a business credit score so you can keep your personal credit score healthy.
2) Gain control over your cash flow - The most crucial part of any business is it’s cash flow. You can’t operate without a healthy cash flow and the most successful businesses know how to properly manage it. In order to have the most control over your cash flow, you need to be in a position where you can operate on trade credit with certain vendors. Net terms are ideal for your business because you are able to strategically position which days you pay which vendors, giving you the ultimate control over your cash and allowing you to have more say on when it leaves your hands. However, you can never gain this advantage if you don’t have business credit. If vendors can’t see your business’ financial past (through your business credit score) then they will not grant you the opportunity to operate on net terms with them. Your vendor relationships are incredibly important and they aren’t willing to take the financial risk by extending credit to a customer who doesn’t have a business credit score. Get a business credit score and keep it healthy so you can take advantage of trade credit.
3) Get more working capital - The most beautiful thing about a business credit score is that it can lead to more cash. You need cash to run your business, and sometimes you need that cash before you have earned it. Most businesses need to take out loans and use credit cards to financially support their business in the beginning. However, it is impossible to access that working capital in the beginning without a business credit score. If banks are going to give you money, they need to know how likely you are to pay them back. That’s what a business credit score tells them. If you attain a business credit score and again, keep it healthy, you open up the door to access loans when your business needs them most and to use credit cards, which help push major rewards back into your small business. Don’t shut the door on getting access to working capital by refusing to nourish a great business credit score.
Obviously, building a strong business credit score is must for your small business. However, it is easier said than done. You can start building that business credit score today, though, by enrolling in our free financial bootcamp “Building Stellar Business Credit”. It is a free, 2-week daily email program that will take you step-by-step through the entire process of building business credit.