Why is it important to build business credit?
Credit can be a powerful tool for a business. While personal credit is often highlighted for its importance in financial wellness, building business credit is noteworthy for many reasons.
In some situations, having well-established business credit may be necessary to weather various challenges. Even strong businesses often look for financial resources to fund growth, expansion or other new ventures.
Building credit can also be important for entrepreneurs and business owners who want to establish or grow their enterprises. Having access to sufficient capital could allow businesses to invest in growth opportunities, staff, equipment and more.
In this article, we'll delve into some reasons why building business credit is important.
You have easier access to business financing
One of the most obvious benefits of building credit for business is improved access to financing and capital. When entrepreneurs establish a solid credit history, they may become eligible for business credit cards, business loans, lines of credit, and other funding options.
Business credit cards have different approval criteria, but overall, good creditworthiness may increase your approval odds. Lenders and financial institutions assess creditworthiness to determine the level of risk associated with lending money to a business.
Credit options for a business can vary. However, an established and positive credit profile for a business can enhance the chances of securing funding at potentially competitive interest rates and favorable terms.
Your personal credit score can be protected
Maintaining a clear distinction between business credit and personal credit can help protect your personal credit score. There are actually business credit bureaus that compile and maintain credit reports for businesses.
Building a strong business credit profile involves obtaining credit in the name of your business and paying your business debts responsibly.
Separate personal and business finances
With business credit cards, business finances can be more easily separated from personal finances. This may help diversify borrowing options available to business owners. Examples include business specific loans and lines of credit. Some of these opportunities may offer more favorable terms and lower interest rates than personal loans or credit cards.
How can I use credit to grow my business?
Building credit is closely linked to business growth and expansion. As a business establishes a positive credit history, financing for growth initiatives may be more accessible. Whether that involves expanding into new markets, opening additional locations or investing in new technologies, having access to capital can be useful.
Credit can serve as a catalyst for growth, enabling businesses to seize opportunities that might otherwise be out of reach. With adequate funding, businesses can invest in research and development, marketing campaigns, infrastructure and other expansion-related activities.
Investing in staff
A business credit card or business line of credit can provide the funds needed to strategically invest in staff. This investment may help put together the right team to support your business's growth and success. However, it's important to manage your credit responsibly. Only you can determine if the investments made in staff align with your overall business objectives and financial capabilities.
Specifically, a business credit card or business line of credit can provide you with some financial flexibility to invest in staff in several ways:
- Hiring new employees: When your business is growing, you may need to hire additional staff to meet the increased demand. Credit can help cover the costs associated with recruiting, training and onboarding new employees.
- Training and development: Investing in staff training and development can be crucial for enhancing skills, productivity and overall business performance. With business credit, you may be able to finance training programs, workshops, seminars or certifications that help your employees acquire new knowledge and skills. This, in turn, can contribute to the growth and competitiveness of your business.
- Recruiting and retention incentives: Business credit can help cover the costs associated with recruitment efforts, such as job advertisements, headhunting fees or background checks. Additionally, a business can utilize the funds to consider offering retention incentives to valuable employees, such as performance bonuses or employee benefits packages, which can help attract and retain top talent.
- Expansion and scaling: If you're planning to expand your business or open new locations, credit can support the expansion process. A business line of credit or business credit card may provide the necessary capital to hire staff for the new ventures, cover their salaries during the initial phase and facilitate smooth scaling of operations.
Businesses often spend money strategically to maximize marketing impact, strengthen a brand and attempt to generate revenue. Specific opportunities that a business line of credit or business credit card could help finance include:
- Trade shows, conferences or events
- Market research
- Website development and optimization
New equipment or inventory
Sometimes, upgrading your staff's tools, equipment or technology can enhance productivity and efficiency. A business credit card or business line of credit can help you invest in new software, machinery or other resources that enable employees to perform tasks more effectively. They may be also good options for equipment or inventory purchases when they're part of an expansion plan or upgrade initiative. In some cases, business credit could be helpful to replace broken or outdated equipment and inventory.
A strong credit profile not only helps enable access to financing and potentially favorable interest rates, but it can also establish credibility, foster trust with suppliers and partners, and potentially pave the way for long-term business success. By establishing positive payment history and managing your business credit effectively, you can strengthen your business credit profile. Business credit can be leveraged in many ways, so its importance can't be overstated.