What is Business Credit? +5 Reasons You'll Want to Start Building it ASAP
If you’re new here, welcome to our educational series on Business Credit, created just for business owners like you. Lesson 1 starts below
See Lesson 1 here
Lesson 1: What is Business Credit?
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As a business owner, you know the importance of your personal credit score and its key role in your personal finances, but what about your business credit score?
(and yes, whether you know it or not, your business already has its own credit scores and reports. Surprise!)
But what is business credit, and why is it important?
Your business credit score is a measurement of how fundable or creditworthy your business is. Similar to how a personal credit score determines your personal financing options, your company’s business credit score helps determine if your business can get approved for a business loan, how much funding you can receive, and what the terms of the loan would be.
5 Reasons You'll Want to Start Building Your Business Credit ASAP
No impact on personal credit score
While you are establishing or building on your business credit, you can be assured there will be no negative affect on your personal credit score. Even if limits are maxed out. Also, you can still build business credit even if your personal credit score is currently poor.
Tied to employee identification number (EIN) rather than your personal social security number (SSN)
One of the most appealing parts of business credit is you being able to separate yourself personally. Your company’s business credit score will be solely tied to the EIN, not your SSN.
Business credit is solely based on pay performance
Whereas your personal credit score can drop just by utilizing too high of a percentage of your overall credit, and your length of credit history in years, business credit is much simpler than that. Your business credit is based solely on your history of making payments (no missed payments being ideal), as well as making those payments on time (or even early!).
Business credit leads to credit limits 10-100x higher than personal credit
Also contrary to personal credit, business credit allows you access to much higher credit lines in a much shorter period of time. Needless to say, this increases your potential borrowing power and your opportunity to leverage to grow your business, as well as stay in business when cashflow is tight.
Your Initial business credit can be built within 30 days
Establishing business credit can be done very quickly. Once the first vendor is added, all it takes is making the first payment (early or on time) and then you will have a strong business credit score! From there you will work on adding more vendors as you climb up the three stages of building business credit. From start to finish, a very strong business credit score can be built within 4-6 months.
Business Credit is an underutilized and often misunderstood opportunity that savvy business owners like you can and should take advantage of.
Look out for our next Lesson. You can also get the next lesson in your inbox by entering your email below!
