According to financial experts, about 40% of small business owners who apply for a business loan get rejected.
It can be challenging to get approved for a small business loan, especially if your business is new or has a bad credit history. The truth is that financial institutions often want to know about your personal credit profile.
You may be wondering how to build business credit or how your credit score can be affected. Many business owners are not aware, but their business credit scores affect their company.
A business credit score is a number that indicates if a business knows how to manage its finances. Building a strong business credit history can open the doors to find great loans or other types of funding.
Here are some steps to build business credit:
Register your business entity and get an employer identification number (EIN) from the federal business bureau.
Open a business bank account.
Establish a business address and a dedicated phone number.
Apply for a business credit card or get a business line of credit.
Also, making payments on time (for example, with credit cards) and monitoring your credit history will help you build strong business credit.
If you can’t manage your debts, if it seems like you can’t afford another monthly payment and you might not get approved for a loan.
Why Having a Good Business Credit Score Matters
Having a good business credit can help you get better terms from your suppliers or qualify for lower insurance premiums.
You qualify for higher credit limits and access larger amounts of capital. Getting access to high-limit credit can improve your ability to make big and better purchases for your business.
You could negotiate lower interest rates. Businesses with poor credit are likely to receive business lines of credit with higher interest rates and lower maximum limits. The better your credit profile, the better your interest rate.
Protects your personal finances. As a business owner, you should know that keeping your personal and your business’s financial information organized and separated is a must. Also, it will help you to reduce your legal liability and can help you manage your tax and business bills more efficiently.
Good business credit also makes your business look good. Some potential partners might request to see your reports.
It will be easier to qualify for a business loan when you have a solid history of success in business. As a business owner with a good credit score, you’ll likely be able to get a loan quickly. Also, you can get loans from top lenders.
Don’t let your business score drop down
According to Entrepreneur, many small business owners are unfamiliar with their scores.
If you want to get a loan in the future and you’re not aware of what your FICO score is, don’t worry, you can see your score, along with the top factors affecting your scores, for free online.
And if you know what your business score is and it’s low, don’t worry. It’s never too late to start building a strong business core.
Start building your credit today!
Not knowing or understanding your credit score is one of the most common financial mistakes business owners can make. A business credit score is similar to your personal score, but it’s not the same. If you want to get a small business loan, lenders will look at your business score, not your personal one.
The benefits of having a good business credit score are more than you can imagine. Take the right decisions and rebuild your score.