Business finance is one of the most daunting aspects of starting a new company from scratch, especially for first-time entrepreneurs. The way you manage your company’s finances is one of the most important factors for your long-term results.
Business credit is a vital tool when it comes to building a successful and financially sound business. Building your business credit will help you open up new financing opportunities and put your company in a position to succeed.
In this article, we’ll discuss what business credit is, why it matters, and share some strategies for improving your business credit.
Business credit is the creditworthiness of your business entity or company.
You know that creditors view your personal history when you apply for a loan, credit card, or other type of credit. Similarly, business credit impacts the ability of a business entity to obtain loans and other kinds of financing.
In short, business credit is a measure of the financial health and reliability of your business.
While personal credit scores are conventionally measured on a scale of 300-850, there are several different methods of assessing business credit. Different creditors may use different scores to determine your creditworthiness.
The most widely recognized sources of business credit reports are Equifax, Experian, and Dun & Bradstreet.
An Equifax small business credit report includes several unique figures such as a credit risk score and a payment index.
Experian provides a unified credit score on a scale of 1-100. It also groups companies into “risk classes” from 1 to 5.
Dun & Bradstreet has the most complex reports, offering a total of four scores representing viability, failure risk, late payment risk, and past payment history.
With so many different ways of measuring business risk, there’s no single way to game the system. As a business owner, you should focus on making on-time payments and improving your company’s overall financial health. We’ll cover business credit strategies in more detail in a later section.
It’s much harder to grow and expand your company without the help of business credit.
Good business credit can benefit business owners in several ways:
Now that you know why business credit matters, here are seven steps — in chronological order — that you can take to help build it.
Building business credit takes some time, but it’s worth the effort. It’s a vital piece of the puzzle as you grow your business and work toward reaching your long-term goals.
Ready to get started? Firstbase makes incorporation easy, helping founders create LLCs and C Corps in a total of 43 states. Hit the link below to incorporate your company and begin building business credit.
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