Why business credit is so important to the successful entrepreneur? For starters, it helps you get much needed funding from banks and other lenders. And since many entrepreneurs are highly specialized in a given industry, they often find themselves seeking credit for growing their companies. But do you know why business credit is so important?
For 3 reasons: First, having great business credit helps you get business funding much easier and faster. Second, you can receive more favorable payment terms and better credit with suppliers. Third, you can also protect your personal credit rating from negative reports. These reasons explain why business credit scores are so crucial to today's small business owners.
How do you go about building credit? One way is through getting a business credit card. When using these cards to pay bills, you will show financial responsibility. Credit card issuers, banks and other lenders will view you as a responsible individual, which is why they will be willing to extend credit at a low interest rate. This shows them that you are a risk to let loose of your own personal capital.
How will you build your solid business credit report? First, you will need to keep your balance low. This means that you should keep your debt to income ratio at 40% or less. When this ratio gets too high, lenders will become wary. A good ratio is around 25%.
You need to be able to convince these lending companies that you are worthy of their investment in you. The key to establishing good credit credibility is to establish a solid business credit score that will include a low ratio of unsecured debts versus secured debts. This means that you will have enough liquid cash on hand each month to cover your monthly obligations. Some of the lending companies that help build business credit score are banks and lending companies, including commercial banks, credit unions, and non-profit consumer credit counseling agencies. Some of these companies may require you to have a co-guarantor, or a co-signor, and some lending companies may even have a minimum credit score requirement.
Your business credit report and score from all these reputable sources will tell the lender that you are serious about paying back the money that you owe. Lending companies will use this information when approving or denying your small business loans. If you need commercial business loans, then the right financing is available for you.
The second step is to prevent negative credits from building up. This can be done by first eliminating all unnecessary spending and increasing your monthly cash flow. Many times this means having to give up some luxuries, or cutting back on some extra activities. When you are able to increase your monthly cash flow, you can then pay down your debt, even though you are not technically paying down the full amount. You can also seek the advice of credit repair companies if your credit history is really bad.
It is often difficult for small business owners to overcome the obstacles that come with bad credit. In fact, many people who are struggling to start a business wind up folding because of too high a cost to borrow and a poor ability to manage their debt. However, it is not why small business owners should have bad credit, it is why they need to take the steps to fix it.
There are two major factors in determining your credit score. Your payment history is the most important factor, followed by the number of credit accounts you have opened and the types of accounts you have held. Each of these factors has a major impact on your score. One way to help improve your score is to get . . . . . . rid of any old lines of credit, which lower your overall score.
Another way to help improve your credit score is to hire a credit repair company. These companies have professional consultants who can help you get your score raised by checking the information contained within your credit report. By disputing errors or inaccuracies with the credit bureaus, you can get them removed. A good credit repair company will also be able to remove negative entries that have been made on your reports as well. Some of these items may be legitimate, while others could be an attempt by a creditor to manipulate the way that you are paid. Having good business credit is important because creditors look at this type of information before they make a decision on whether or not to extend you credit.
There are many different ways that business owners can improve their credit scores. Many small business owners try to handle their own finances in the house, but larger corporations often outsource their financial management to lending companies. Lending companies are just as anxious as business owners to be able to loan money to business owners. Therefore, they are more likely to approve credit cards and loans to business owners than they are to business owners themselves. The reason why business credit is so important is that if you don't have good business credit, then you may be at a disadvantage when it comes to getting affordable financing for your startup business.