If you own a small business you may want to consider building your business credit. Owning a business is a struggle in itself. How can any new business expect to grow with limited resources and finances? That’s where business credit comes in.
Business credit can help take your business further by providing the financial means your business needs. Here are just a few reasons to consider business credit:
1. Separate Business & Personal Finances
Crossing your business finances with your personal finances can be a real headache. Throw in bookkeeping and tax information and now you’ve got a recipe for stress. Personal finances should not be a part of your business finances and vice versa. Business credit makes it easy to separate the two. With business credit, all of your business expenses will be under your business credit tradelines and not on your personal Visa Card.
If your business is incorporated, it is imperative to avoid mixing personal finance with business finance. If you fail to do so, your legal protection by act of incorporation is voided. This means if your business is ever sued, you will be sued as well. This can and will be devastating to your credit, especially if you don’t have the funds to handle the lawsuit.
2. No Business Tradelines on Personal Credit Report
If you don’t have business credit, chances are most of your business expenses are charged on your personal credit cards. Most new business owners rely on their personal credit to kick start their business. This usually results in a huge drop in personal credit score and a serious amount of debt.
Lenders will use your DTI ratio (Debt to Income) to determine how much you can responsibly borrow. This means your mortgage, car payment, and other personal debt may hinder you from getting the loan your business needs. By using business credit you can obtain a loan with a clean slate.
As the first reason states, separation is key! What if there was a way to keep your business credit on your business credit report and off of your personal? Well, there is. The first thing you would need to do is establish business credit. Once your business credit is established you may begin to open new tradelines using only your business credit, taking your personal credit out of the picture. This removes you from any personal guarantee (no social security number) and puts the account only under your company’s name (Tax ID number.)
3. Financial Cushion
Eight out of ten new businesses fail within the first 18 months. That’s 80%! You can search for the reasons why small businesses fail and you’ll find the same answers. One of the most common is the lack of funds.
Success doesn’t happen overnight and sometimes it takes time to establish your brand. You can have a great service or product but if the money runs out it’s time to close up! Established business credit can supply your business with the loans and tradelines it needs to grow. Giving your business more time to flourish.
4. Tax Benefits
Certain business tradelines and most business credit cards will allow you to write off any interest you pay towards the account. While it is ideal to pay off your balance every month, it is good to know that the interest is tax deductible.
5. Sign-Up Rewards
With established business credit your company can obtain business credit cards. Most business credit cards will offer bonuses and rewards upon opening a new account. These rewards can be redeemed for travel and cashback. Use the rewards to obtain more resources for your business so you can grow.
Free Business Credit Consultation
Interested in Business Credit, but don’t know where to start or what steps to take? Fill out the form below and we’ll have one of our Business credit analysts give you a call.