- At the moment, there are over 30.5 million small businesses in the United States of America
- Small companies create approximately 1.5 million jobs annually and account for over 64 percent of new jobs created within the U.S.
- Over 90 percent of the business population is either a small or a medium-sized business.
- More than 50 % of small businesses fail within their very year of operations, and more than 95 % of small startups fail within the first five years.
For small business owners, it is absolutely crucial to maintain a good business credit score. This is particularly the case for startups, as they (generally) do not have enough capital on hand to independently finance all of their business expenses- such as equipment-related costs, inventory fees, advertising and marketing, and wages.
Consequently, a significant amount of startup or small business owners rely on financing to afford all of their expenses, which is why having a robust business credit score is so crucial.
The vast majority of financial lenders will be heavily swayed by the state of your business’s credit score when deciding whether or not to decide to either invest in your business or to grant you a loan.
This is because- as we will further explore below, a good business credit score reflects accountability and responsibility, and ultimately means that your business is a relatively low-risk investment. Similarly, a poor business credit score can quite literally condemn a business’s future- especially if a large amount of capital is a prerequisite for its long-term expansion and consequent success.
Having said that, even if a business with a poor credit score does get approved for financing, the terms that they will receive will be extremely harsh in comparison to a business with a high score (as it’ll pose a higher risk to the financier).
This could significantly impact a business’s future prosperity, as it could pragmatically mean that the costs incurred from the financing cannot feasibly be sustained, as it would take too long for all the debt to be entirely paid off.
Why Having a Good Business Credit Score Matters
Undoubtedly, one of the most significant advantages of having a good business credit score is how quickly and easily you will be able to qualify for business loans. This is because financial lenders are usually wary of businesses that have a poor or unsatisfactory credit score given that they pose a higher risk in comparison to their good credit counterparts.
If your business has a robust business credit score, you will unequivocally stand out among your competitors, and you will likely be able to attain access to financial loans without having to go through a significant degree of legal rigmarole.
2.Better Loan Terms
Generally speaking, financiers are much more likely to offer favourable repayment terms to businesses with good business credit scores (and consequently with proven reliability and fiscal accountability).
For example, a small business owner with an excellent business credit score may be able to leverage the fact that he or she poses an exceptionally low risk to the financier, and consequently negotiate a significantly lower interest rate on his loan. Lower interest payments can- depending on the volume requested, save a business tens of thousands of dollars in the long run.
3. Increased Personal Finances Protection
A good business credit score can allow business owners to effectively separate their business and personal financial obligations. As your company debts will be reported on your business’s credit report, your personal credit rating will not be impacted if your business faces significant financial hardship (or vice versa).
Having said that, it should be duly noted that it is still essential to review and maintain a healthy personal credit score as well, especially if you currently are (or are aspiring to be) a business owner. This is because when applying for a loan, lenders will likely want to review your personal credit score in addition to your business’s.
4. Better Terms from Suppliers
Establishing a good business credit score can allow business owners to attain more favourable terms in relation to the credit terms provided by their suppliers as well (not just in relation to their business loans).
In practical terms, this means that when purchasing additional inventory space or company equipment, you will be able to opt for purchasing on credit and that your suppliers will (in accordance with your relative business credit score) ascertain that you are fiscally safe and duly capable of repaying your debts in a timely and agreed upon manner.
5.Increased Access to Cash for Company Growth
This step is very important for business owners looking to expand. This is because even if your business can satisfy all of its financial needs without credits or financial loans at the moment, this is unlikely to be the case when and if you decide to expand.
For contextual purposes, this means that relying on a business loan for an expansion-related initiative will likely allow you to expand past what you had initially imagined- regardless of whether that relates to your: equipment, inventory, or facilities.
How Your Business Can Achieve a Strong Credit Score
After understanding the importance of achieving and maintaining a robust credit score, you should allocate a sufficient degree of time to structure your business in a financially healthy way. Some of the steps you can take to ensure that your business attains a good credit score include:
- Pay Your Bills on Time: Always ensure that you pay all of your business bills on-time and in-full; this will allow credit bureaus to see that your finances are responsibly managed consistently- a fact which will be reflected in your business’s credit score.
- Reduce Existing Company Debt: This can undoubtedly be challenging for a lot of individuals, but it is a vital step in fulfilling your financial obligations and obtaining a stronger credit score for your business.
- Frequently Check Your Credit Score: This is important, as it can allow you to quickly recognise any mistakes that you have made or issues that have come up, and consequently make changes accordingly.
The ample benefits of acquiring a strong business credit score are indubitably self-evident.
Whether you are an aspiring entrepreneur, a small business owner, or the head of an established and prominent operation, building your credit score sufficiently is extremely important as it can ensure that you adequately position yourself so as to be able to pursue your business’s long and short term goals for many years to come.
We hope you enjoyed reading.