Many small businesses fail because of the inability to establish and maintain good credit. The number one reason for this is usually lack of proper planning and poor money management. But credit is not something you just “do no matter what”. There are ways to improve your credit rating if you take the time to learn and understand how it works.
Your small business needs access to a lender that will advance funds on a regular basis. You need to start building credit by first opening a checking account. Be sure to deposit money into the account every month and keep it monitored. If you do not have the time or desire to do so, consider getting a credit card for the business.
Keep track of all deposits and payments and develop a budget for the business. This will help you budget for future costs as well as managing debt properly. It will also make it easier to meet monthly expenses such as supplies, rent, utilities, insurance and tax obligations. All of these cost money and can quickly add up.
Some small business owners choose not to open a checking account. This may be a wise choice if the business is cash-only. In this case, credit cards become an important tool. These cards provide flexibility and convenience as they work just like a typical credit card. However, since they are a virtual account, it can be difficult to access funds if the business loses money.
A business can manage its own credit by obtaining merchant services. This means that when a customer swipes their card at a participating retailer, the business's card is used instead of the customer's. When that card is used and the account is paid in full each month, that payment will be reported on credit reports. This can have a positive impact on your credit score if you pay bills on time each month.
Another option for managing your credit is to obtain financing. Credit cards come in many forms, including gas cards, travel cards and department store cards. If you own a small business, you may want to talk to a consultant about available financing options.
There are different ways that you can manage your small business credit wisely. The first step is to decide which cards are right for your needs. Do you need one or two cards, or do you need all of them? Once you determine which cards you need, learn about the features of each one offers and explore the interest rates, rewards and benefits of each card offers. Finally, compare all cards and select the one with the best terms.
Remember, your credit history makes you a good risk assessment. If you consistently pay your bills on time and in full, you will build a good history for lenders to consider. If you have too many credit card accounts, don't bother opening new ones. Instead, focus on paying off the current accounts and slowly but surely rebuild your credit.
When it comes to funding the operations of your small business, you have a number of options. You can obtain short-term funds from investors, temporarily lay off employees or reduce prices for products and services. When it comes to building long-term prosperity, however, it's important to focus on building your savings and retirement funds. If you're unable to immediately roll over your funds, find other ways to accomplish this, such as by borrowing from family or other friends, or opening an account at a local bank. Make sure you . . . . . . understand how withdrawing funds from a bank affects your credit rating and whether you can roll your funds over into other accounts, if necessary.
You should also take stock of your immediate and future needs, both for growth and financial security. Do you foresee the need for additional capital, such as more capital for expanding your business? Do you anticipate major purchases or renovations that will significantly raise your funds demands? If so, you'll want to examine the costs of those needs, including possible borrowing, and work those costs into your budget.
Now that you've examined your personal and business financial situation and have determined what your needs are, it's time to look at what sort of a funding plan you may want to establish. There are several different ways you can provide funding for your small business, including borrowing funds from family or others, creating a trust fund, or obtaining a small business loan. Each option has its pros and cons. Which method is right for you will depend upon your unique situation and financial circumstances.
You'll also want to consider whether you will be able to manage the costs of providing funds for your small business. You may need to obtain a small business loan, for example, in order to fund ongoing expenses and grow your business. If you do that, you may be required to pay interest on that money during your working years, although your final return on that investment may be somewhat limited. If you don't have other sources of funds available, you may also have to forego some of the tax benefits of owning a small business, such as reducing your business' income tax liability.