Why Business Credit is Important – Part II

May 8, 2019
HOW BUSINESS CREDIT CAN HELP GAIN BUSINESSⁱ

Many businesses are evaluated on their business credit when they bid on contracts or shop their services to potential business partners. Companies want to make sure they are working with other businesses that can deliver their product on time or complete a project without the risk of the vendor going out of business.

The information in a business credit report can indicate if a potential partner has historically paid its lenders on time and predicts the timeliness of how it will pay its bills over the next 12 months. In addition, the business credit report helps predict the likelihood of whether or not a business will go out of business in the foreseeable future, among other things. Because some businesses perform this check before signing on the dotted line, managing your business credit profile can be especially important if your business is competing for supplier contracts. Your business credit file can be a deciding factor on whether or not to further consider your bid.

How Business Credit Can Help You Get Funding

Many small businesses rely upon either personal or business credit to help finance the purchase of new machinery, acquire inventory and expand their operations. Even recurring costs like payroll can be covered by short-term loans. Most lenders require assurances that they’ll be repaid on time.

When banks, suppliers, or customers consider extending credit to a business, most want to gauge the level of risk they’re taking on by providing funds. Potential lenders can look to a borrower’s business credit file for examples of past payment behaviors, including defaults that have been reported to business credit bureaus. You can think of consulting a business credit report as reading the financial biography of a company.

Business credit scores and ratings can influence how easy it is for a business to acquire funding, and can be leveraged for better payment terms from banks and suppliers. Many banks will check both personal and business credit for small businesses, so it’s wise not to let either score falter, especially when your business is still young. A poor business credit standing or excessive debt makes you appear risky to lenders, which can lead to a loan rejection. In a tight lending environment, it pays to clean up your business credit report by making payments to vendors on time and keeping your debt balances low.

Business credit can apply to many different types of funding, especially when trying to get traditional and alternative loans. Learn about the different funding options for your business and how business credit may be able to help you get money for your business.

Managing Cash Flow with Business Credit

Your business credit can also help you manage your cash flow. By checking other companies’ business credit files, you can help anticipate slow or late payments, allowing you to prepare for or prevent cash flow crunches. Your business credit can also help you get higher credit extensions from vendors, which can improve your cash flow.

Business Credit Myths & Misconceptions

Business credit is more than just scores and ratings; it’s a way to convey your business’s credibility to others. Your business credibility can help assure others that your company will deliver on its promises. Other business owners want to know that they can trust your business and the claims it makes, and it’s important to show lenders and prospective partners that you’re the real deal. Learn how your business credit can help demonstrate your business credibility.

Popular Business Credit Myths

• Myth: My Business Doesn't Need Credit – Every business can benefit from having strong business credit, whether you’re a “mom and pop” shop, a middle market firm or a well-known enterprise, your business credit can help you get funding, contracts, better terms and conditions and overall stronger partnerships.
• Myth: My Company is Too Small for Business Credit – Business credit can be even more important for small businesses than for others. A strong business credit file can help you save money, which can be crucial for small businesses. It can also help you grow. When looking for funding or new contracts, your business credit report can be very valuable. In particular, small businesses should build and monitor their credit.
• Myth: My Personal Credit Has Always Worked for My Business – Keeping your personal credit and business credit separate can be crucial. As your business grows, you are likely to assume more personal liability if your personal credit is tied to your business credit. Your personal credit may also suffer when personal credit reports are pulled for your business. In addition, your personal credit may not accurately reflect your business’s financial health. It is so important to keep your personal credit and your business credit separate.
• Myth: No One is Looking at My Business Credit Report – Unlike with personal credit, another company doesn’t need permission to view a business credit report, which means anyone could be looking at your report. Any time you do business with another company, there is a chance your report may be pulled to evaluate your business. Companies looking to partner with suppliers and banks, in particular, may use business credit reports to help them make key decisions. Stay on top of your report, even if you don’t think others are viewing it.
• Myth: I Don't Need to Pay Attention to My Business Credit – Monitoring and managing your business credit file can be very important because you may not know when another company will use it to make decisions. Past performance is not an excuse to disregard your business credit now. Often, business owners realize they need business credit too late. Some business owners may miss out on potential contracts, loans or customers because they waited too long to pay attention to their business credit file. Be preemptive by monitoring your credit.
• Myth: Business Credit Monitoring is Too Costly – The decisions others could be making based on your business credit report may be costing you money. A strong business credit file may help you get better payment terms, insurance premiums and credit limits. Spending the time, and sometimes money, to help impact your report, could save your business money in the long run.
• Myth: My Accountant Should Handle My Business Credit File – Your accountant should be helping you manage and save money, but not all accountants are well versed in building or monitoring business credit files. There are tools that can help you monitor and impact your business credit file.

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