Why Business Credit is Important for Small Businesses

In the previous blog post, I discussed what business credit is. It determines the capability of a business to borrow money, supplies or services. Several factors affect your business credit score. In this post, I dive into the importance of business credit.

For entrepreneurs, business credit is a very valuable resource. Business credit is one of the integral factors that can affect your business growth. Why you say? Read on to find out.

Why is Business Credit Important for Small Businesses?

Growth is a built-in feature of all living things. Your business is a living thing, affecting the people it touches in small or big ways. Grow your business and achieve the following benefits once you attain and maintain a good credit score.

 

Improved credit capacity. Unlike with personal credit, business credit gives your company 10 to 100 times greater credit capacity. Most banks, investors, and lenders rely on your credit capacity when deciding on loan terms or when considering you as a feasible business partner. As stated by the U.S. Small Business Association, without business credit you’ll have to rely on your personal credit instead.

 

Better rates and quicker loan approval. Most banks and other lending firms determine the interest rates of loans depending on a business' credit score. Having a good credit score means you can qualify for lower interest rates. This is because a good credit score suggests that your business can pay debts on time.

Any business is susceptible to hard times. When experiencing a financial crisis, the common option is to apply for a loan. But not every loan application gets approved. Why? One of the several factors that can affect a loan approval is that lack of or dissatisfactory business credit score. Having a good business credit score gives your higher chances of loan approval.

 

Increased company value. Low credit scores can indicate financial stress for your business. On the other hand, good business credit means your business is doing good. This can make your company more attractive, increasing your avenues for growth – more sales, more investors and more opportunities.

Although you may not be planning on it soon or ever, business credit can be transferred to the new owners when you decide to sell your business.

 

Protects your personal credit. Your business credit provides a safety net for your business and personal finance. With business credit, entrepreneurs won’t have to merge their personal credit, debts, and assets to the company. It draws a safety line between you and your business.

Mixing personal and business finance is never a good idea. Using your personal credit for your business makes you entirely liable for any debt. And there’s always the risk of hitting a dark road in business. It is therefore important to separate business credit from your personal credit to protect your personal finance.

 

A business credit serves as the lifeline of a business, especially small and startup businesses. It gives your business more and better opportunities to expand, grow and ultimately succeed. In order to ensure you get and maintain an ideal credit score, keep in mind the different factors that can affect your business credit.

Unlock your full potential as an entrepreneur. Learning and practicing the essential business knowledge, principles, and mindset will ultimately lead you towards the path of success. Check out my blog for more resources that can help cultivate your business to success.

"We must increase in knowledge and apply knowledge in action." – Garth Vickers, The Wealthy State of Mind

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