If you’ve been making excuses and neglecting to build your business credit, you could be limiting your access to capital and new contracts. Most business owners are busy trying to grow their companies, but that’s no reason to ignore the importance of establishing business credit. Here are five common excuses that stop business owners from building business credit, along with reasons the excuses don’t stand up to scrutiny.
“I Already Have Great Personal Credit”
According to the U.S. Small Business Administration, a creditworthy business has the potential to obtain 10 to 100 times the credit capacity of an individual using personal credit alone. A successful business has its own assets and payment history that can free-up more financing from lenders. Your business may benefit from higher credit limits, better rates, and more favorable credit terms than you as an individual. Mingling personal and business credit can also have costly consequences for you, stripping away protection that can be provided by some business structures.
“No One Really Looks at My Business Credit Anyway”
Banks, suppliers, lenders, and lessors can all conduct business credit checks as part of their risk assessment process. It can be crucial that you build business credit to help your company qualify for financing based on its own creditworthiness. As a business owner, you should also be checking the credit files of suppliers and clients to help manage supply chain risk.
“I Can’t Build Business Credit Because I Have Bad Personal Credit”
Personal credit problems can be a challenge. This is especially true for new businesses that haven’t had time to establish a business credit file. Even if traditional lenders turn you down, there are other financing options that can help build business credit. You may be able to secure trade credit from vendors or qualify for revenue-based loans. Paying your bills on time can go a long way toward impacting your business credit scores and ratings.
“You Can’t Get Business Credit if You are a Startup Company”
While it’s true that many banks shy away from lending to new companies, suppliers and vendors often offer short-term financing for startup companies. Known as trade credit, this practice allows businesses to be invoiced for goods rather than pay the full cost upon delivery. Terms typically range from net-30 to net-60 days. This allows a business to pay for the goods with the money made by selling them. If you meet the terms of the trade credit agreement, your supplier may provide a positive trade reference** to a business credit bureau like Dun & Bradstreet. These payment experiences can help establish business credit over time. Keep in mind that missed payments can be reported as well, and they may damage your business’s credit scores and ratings.
“I’m Self-funded and Don’t Need to Borrow for My Business”
Many entrepreneurs have had success with bootstrapping – starting a business without borrowing funds. However, just because you can cover all your business’s expenses now doesn’t mean you should ignore the importance of having a strong business credit file. In the worst-case scenario, you may need to borrow to cover losses during an economic downturn. This could be made more difficult if you haven’t established your business credit.
Here’s something else to consider: access to capital can help expand your business when times are good. Self-funding may be practical for you now, but there may be advantages to seeking outside financing down the road. You may be able to afford to start a business, but can you handle the cost of success?
“Building Business Credit Takes Too Much Time”
Don’t let excuses prevent you from building business credit. It may prove to be one of the smartest decisions you make Tweet This
The process of establishing business credit may seem intimidating. However, you can lay the groundwork for your business credit file rather quickly. Here’s one thing to consider: unless you just opened your doors, you’ve probably already had positive trade experiences with suppliers and clients. You may be able to submit these trade references** to D&B for verification. Products like CreditBuilderPlus™ can make reporting trade references convenient and easy.
A successful business will be doing many of the things that contribute to a strong credit file as a matter of course – and that’s where the real hard work comes in. Helping business credit bureaus understand your firm’s financial situation isn’t a chore, but an investment in your own success. Don’t let excuses prevent you from building business credit. It may prove to be one of the smartest decisions you’ll ever make as a small business owner.
Photo Credit: Glen Darrud, Flickr