Did you know that about 50% of businesses close down before their 5th year? Once a business owner launches into the scene, capital can be a challenge. For a seasoned business owner, problems come in different ways.
Thus, business credit will come in handy at different times. For example, when trying to get new funds for your business, launching a new product, expansion, or saving the company. Below are a few frequently asked questions about business credit.
1. What is business credit?
Business credit is a loan or line of credit extended to a company or an individual to run business operations. Business credit can be in the form of money or goods and services. You can also build business credit in 30 days if you keep on honoring the agreement with as many lenders. Business credit providers like Banks, Creditors, Vendors, lenders, and Suppliers will rate you on credit bureaus databases since they rely on the information on there to determine whether they want to do business with your company. This will add to your business credit score that you demonstrate your creditworthiness.
2. What is the difference between business credit and personal credit?
While personal credit is in line with your regular I.D number, your business credit is to your business registration number. Also, the features of a business credit differ from one lender to the other. For example, the limit or capacity of business credit is more as compared to personal credit. This business credit capacity will help in the funding of projects. Plus, your regular credit file is one, but you can have many business credit files. If you have many businesses, each business can have a separate file. Importantly, funding a business through personal credit cards could lead you to financial risk if it does not work out. Therefore, it is paramount to keep your regular credit and your business credit entirely separate.
3. Why is business credit essential?
Business credit is one of the most critical elements that your new or existing business can have. Business credit can be in kind or cash, and this will help run the business without interruptions. It can help grow your business and provide you with the funds and resources you might need now or in the future. Besides, business credit can protect you from personal liability in the event your business gets in trouble. Because your business credit operates separately from your personal credit, it is liable for its own financial losses.
4. How can you use business credit?
Apart from direct funding, you can use business credit to get goods or services on credit. Once you have honored payment terms, the creditors or lenders will update the credit report that later affects your business credit score. When your company applies for a business loan, the creditor checks one or more of your business credit reports and their scores. A creditor can be a bank, a supplier for goods or services, or both. You can find credit bureaus that collect and manage information about your company and pick one that suits you.
5. What information is in a business credit report?
Do not panic about the information collected on your application form. This information is used by lenders to know you. Ensure that you update this information regularly to avoid any contradictions. Some of the information contained in the business credit report is the principals of the company, how long you have been in operation, company revenues, location of the business, number of employees, and your credit history with banks and suppliers, among others.
To sum up, it is essential to establish and build good business credit because of its numerous benefits. Besides, the questions above will help you know what the lenders use, and the information on your business credit report to decide whether your business is creditworthy. Hence, be sure to monitor and protect it to keep your credit score up. A good score will also help you build your business credit faster, allowing you to get more funding and work with other suppliers on a credit basis.