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February 27, 2024

What Is Business Credit And How Can You Build Fast? Business Credit 101

Unlock the secrets of Business Credit 101. Discover how it works, how to build it, and gain the financial edge you need to succeed.

What Is Business Credit And How Can You Build Fast? Business Credit 101

Navigating the intricate paths of small business growth, especially in today’s tech-enabled environment, requires understanding what business credit is and how it operates. With businesses like Boopos providing entrepreneurs with more tools and support than ever before for acquisition and growth, it’s essential to understand the role of business credit in these decisions - and the future success of your business. Ahead, we’re answering top questions about credit for businesses, like:

  • What is business credit?
  • Why is business credit important?
  • How can you build business credit?
  • How long does it take to build business credit?
  • How to improve business credit score?

What is Business Credit and How Does It Work?

Business credit acts as the heartbeat of a company's financial reputation. It's a mirror reflecting the fiscal behaviors of an enterprise, showcasing its reliability to stakeholders, partners, and platforms. Here’s the thing - 82% of small business owners don’t really  know the answer to: “what is business credit?” But if you know more about business credit and how it works, you’re likely going to have a better financial outlook. So let’s get back to the business at hand - understanding business credit.

Who Needs Business Credit?

Business credit is crucial for various entities aiming to fortify their financial foundation. It's essential for:

Small Business Owners: For small businesses and startups, establishing strong business credit early can be crucial. It demonstrates fiscal responsibility and stability to suppliers, lenders, and potential partners.

Corporations: For established companies, business credit is key to maintaining their reputation in the market. It affects their relationships with investors, partners, and other stakeholders.

Entrepreneurs: Business credit is vital for entrepreneurs eyeing a sustainable growth trajectory. It ensures they can access necessary resources without compromising their financial stability.

Seasonal Businesses: Companies that experience seasonal fluctuations often depend on credit to manage their off-peak periods, ensuring continuity and stability.

Knowing how to build business credit is vital for your company’s long-term financial health. It’s a cornerstone of any business strategy. 

Why is Business Credit Important?

Here are a few of the top reasons why building business credit matters:

Easier Financing: With good business credit, securing financing becomes smoother. If you're exploring how to leverage your credit for growth, understanding the differences between a business loan vs. line of credit can be invaluable.

Favorable Insurance Rates: A good business credit score may result in better deals from insurance providers.

Enhanced Supplier Terms: When procuring credit for business, suppliers often offer more generous terms to companies with impressive credit histories.

Leasing Equipment: Businesses often leverage good credit to lease essential equipment.

Expansion Opportunities: Building business credit opens doors for expansion and new ventures.

Credibility: A strong business credit profile boosts credibility among investors and partners.

Remember, business credit reports are accessible to anyone, which can influence partnerships and other interactions.

Role of Personal Credit in Business

In a company’s initial stages, personal credit plays a significant role, especially when seeking credit for business. Lenders will examine an individual's creditworthiness before providing support. 

Let’s say a SaaS company is in its early phases and doesn’t have an established credit history or financial stability. The personal credit score of the owner or founders act as an assurance for lenders when extending credit for this business, giving them an insight into the individual's financial behavior and responsibility. 

Essentially, if an individual has demonstrated prudent financial habits in their personal dealings, lenders often interpret this as a potential sign that they will be similarly responsible with business finances. If you're considering a business purchase, starting by getting pre-qualified with Boopos can give you a competitive edge.

How to Build Business Credit

To navigate the path of building business credit, consider:

  • Starting early: Begin with a professional presence and distinct business contact info.
  • Formally registering your business: Register your enterprise with the state.
  • Procuring a D-U-N-S number: This unique identifier can bolster your business's legitimacy and is foundational for building a live business identity, which is utilized by 90% of Fortune 500 companies.
  • Opening business credit accounts: Partner with vendors that report to credit bureaus.
  • Employing business credit cards: These not only come with perks but also enhance your credit score.
  • Maintaining timely payments: Consistency is key.
  • Consistently monitoring your business credit: Regularly review scores and rectify inaccuracies.

How Long Does It Take to Build Business Credit?

The journey to building business credit typically spans months to years, depending on various factors like business operations and financial behavior. By consistently demonstrating responsible financial management, you can expedite this timeline. If you're looking to expand your business, knowing how to find investors can also boost your growth prospects, in addition to acquiring business credit.

How to Improve Business Credit Score: 11 Practical Tips 

Improving and maintaining a robust business credit score is a continuous process that requires consistent attention and proactive measures. Begin your credit journey early and ensure foundational business details are accurate. Here's a breakdown of 11 tips you can use to build business credit and improve your score:

Business Credit Utilization 

Ensure you're using a limited portion of the available credit. A low credit utilization ratio often signifies responsible credit management and can positively influence your business credit score.

Diversify Credit Types

Just like personal credit, having a mix of business credit types—trade credit, business loans, business credit cards—can illustrate your company's ability to manage different forms of credit responsibly.

Build Strong Supplier Relationships 

By fostering good relationships with your suppliers and vendors, you can negotiate better terms of credit for your business, possibly even net-60 or net-90 day terms, which can aid in improving cash flow and demonstrate financial responsibility.

Limit Business Credit Inquiries

While seeking credit for business is essential, too many hard inquiries in a short span can indicate financial distress and could hurt your credit score. Be strategic in your credit applications.

Stay Informed with Financial Education 

Continually updating your knowledge about financial management, such as spend management tips for new business owners, can provide insights into best practices for maintaining and enhancing business credit.

Engage Professional Help 

Sometimes, an expert's perspective can offer tailored strategies for your unique business situation. Whether it's consulting with a financial advisor or partnering with tech-enabled platforms like Boopos that provide one-on-one advisory support, this external input can make a difference in building business credit and improving your score.

Regular Financial Reviews

Schedule periodic reviews of your financial statements. Keeping a close eye on your finances helps you make informed decisions and demonstrates to lenders that you are actively managing your business's financial health.

Prompt Dispute Resolution

Address and resolve any inaccuracies or disputes on your credit report promptly. Unresolved discrepancies can negatively impact your business credit score.

Leverage Credit Monitoring Tools

Utilize credit monitoring tools to keep track of your credit status. Tools from Experian and Equifax often provide alerts for any significant changes or potential fraud, helping you maintain a healthy credit for business.

Set Up Payment Reminders

Implement a system for timely bill payments. Late payments can significantly harm your credit score. Setting reminders or automating payments ensures you never miss a deadline, thereby boosting your business credit.

Strategic Borrowing

Borrow strategically and only when necessary. Over-leveraging can be detrimental to your credit score. Consider borrowing when there’s a clear plan for the use of funds and the ability to repay, aligning with your overall business credit building goals.

Lay the Foundation for Strong Business Credit

Understanding why business credit is important and how to improve your score isn’t just about numbers; it’s about laying strong financial foundations. Platforms like Boopos, that offer services from pre-qualification to advisory support, exemplify the relationship between strong business credit and successful growth. With solid business credit and a partner like Boopos, success awaits.

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