Your Business’ Trade Credit Can Help Your Business Grow
Your business’ trade credit score isn’t any less important than your personal credit score. In fact, if you want your business to grow, you need to make sure you keep your personal credit separated from the business’ credit. Once you’ve established your business, focus on developing a solid credit track record so that investors and vendors will come to you with business offers and support. There are several things you can do that will help build your credit rating.
The Credit Burst
By being able to manipulate your finances, you can do things that will improve your credit standing without taking any investment risks. These can be helpful in the early stages of your business, when you are just getting started in developing credit. One of the tactics you can use periodically is called the “credit burst.”
Before you do anything, get a business credit check so that you can see where you stand. Using a business credit card, send your buyers into the marketplace to purchase materials and supplies you need for business for which you already have customers. Even though you already have the money to purchase these materials outright, use the credit card. A few days after you have purchased the supplies, pay off the debt in full. At the beginning of the next month, check your credit score again and see where it is at. You may be surprised how this little tactic can help with building business credit.
Business Credit Report
Your business’ credit is monitored just like your personal credit. There are credit bureaus that look at businesses and provide reports to potential customer and vendors. By having a good financial record, other businesses will trust you and offer terms to help your business become more flexible and responsive to your customer needs. Here are a few reasons why you want to have good business credit.
- Cash flow - Having good credit relationships with your vendors usually gives you the ability to have access to terms when purchasing supplies and materials. Once you have a good business credit score, your vendors may offer 30-day and 60-day terms. This frees up your cash flow so that your money isn’t tied up in products. Once you have another months’ worth of sales on the books, pay off your vendors. You’ll still have cash available for other purchases.
- Better interest rates - Businesses are usually offered much better rates when it comes to taking out large loans. In fact, most businesses can usually acquire loans with rates with half the interest of a personal loan. In addition, businesses with good credit can get loans 10 to 100 times larger than anything you could get with a personal loan. It makes sense to have good business credit. Just be sure to make your payments on time so that your vendors’ reports to the credit bureau are positive.
- Attract more credit - Many businesses are unable to take advantage of some of the larger vendors and suppliers because they don’t have good credit. There may be many corporations that won’t do business with you until you’ve established a solid credit rating. When they check credit scores of potential customers, these businesses want to see excellent ratings and positive comments from smaller vendors.
Keeping Personal Credit Separate
By establishing a good business credit report, you can keep your personal credit totally separated from the business. This ensures anyone you do business with that you are not co-mingling assets and credit ratings. This serves to protect both your personal credit and your business credit. This is important because as your business grows, its ability to take on more debt will increase. That increase can adversely affect your personal credit utilization ratio. If your credit utilization is increased, your personal credit score will drop dramatically. This impacts your personal ability to take out a loan.
Business credit may sometimes take a while to develop, but if you work carefully and use common sense, you can begin to grow your business credit history. This, in turn, will allow you to have access to even better sources of business credit.
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