Credit can be a lifeline for your business. For most entrepreneurs, it takes a hard financial blow to realize this. According to a survey by Guidant Financial, 59% of business owners are able to launch their business using personal cash. Nonetheless, the lack of capital or steady cash flow remained the number one challenge for business owners in 2017.
In the face of adversity, business owners turn to loans, credit cards and lines of credit. However, poor credit scores hindered thirty-four percent of businesses from accessing favorable lending options. If your business strategy doesn’t include business credit, you might end up becoming part of the aforementioned statistic. Here’s what you stand to gain from a line of credit:
Easily accessible cash
A line of credit saves you the hustle of chunks of paperwork and delays whenever you need emergency cash. With irregular or cyclic cash flow being common to most businesses, it’s only logical to keep a quickly accessible pool of funds. Whether you need to stock up inventories, pay salaries or repair that faulty machine, a line of credit will get you out of that jam.
Safeguard Personal Credit Score
As a business owner, investing in a business credit line helps to protect your personal credit score. In case your business makes late payments to creditors, it will not reflect on your personal credit report. Hence, it is essential to maintain the company as an entity separate from your personal accounts.
Capital for expansion
Business credit offers you with the necessary resources to grow your business. Expanding your business will require injecting extra funds into the company. Loans and lines of credit provide necessary capital for expansion. In a survey by the National Small Business Association, 25% of businesses that were not able to receive funding and failed to achieve business growth.
Smooth exit plan
It might be the least of your worries but business credit, and more so good credit scores, will be an essential factor if and when you decide to sell your company. Prospective buyers will be cautious not to inherit huge debts or bad credit scores. Interested clients may walk away or make very low offers.
Business credit card incentives
Aside from offering the business a limited line of credit, these cards come with the added advantage of cashback, airline loyalty as well as hotel and travel rewards. The rewards vary depending on the card provider and money spent. For example, a premium credit card from Barclays and other lenders offer a 6-month initial interest-free purchase period as well as cash back on travel and trade. The Chase Ink Business Preferred and the Capital One Spark Miles for Business also come with good reward rates and fair annual fees.
How to Build your Business Credit Report
According to the US Small Business Administration, 2 out of 3 businesses survive two years, at least a half survive 5 years and one third reach the 10-year mark. The collapse or stunted growth of most businesses is attributed to financial problems. Considering the wide array of lending options available today, it shows that entrepreneurs are oblivious to credit reports and scores.
Register Your Business
First, register your business as a corporation or limited liability company. Have separate personal and business bank accounts. This helps your business to create a rapport with your bank and lenders in general. Proceed to register your company with the major credit reporting bureaus: Equifax, Dun & Bradstreet and Experian.
Build Business Credit
Use credit to make purchases. Ensure you establish business credit with companies that report trade otherwise it will have no impact on your credit score. Also, remember to make payments on time and avoid accumulating more credit than you can handle. Seek out further financial guidance on how to earn your business a good credit score, which is a prerequisite for low-interest business credit.
Business credit offers companies with a pool of cash for various purposes. Despite your current financial stability, maintaining a stellar business credit report goes a long way in boosting your business. You never know when it’ll be the lifeline that will keep your business from sinking. Better safe than sorry, right?