Being a business owner comes with many important roles and responsibilities. From human resources and finances to marketing and sales, you have to always be on top of everything to make sure that you are on the right track to success.
One of the most important things that a business owner should focus on is their business credit score. What is a business credit score and how does it affect your business?
Business credit score defined
A business credit score conveys how qualified your business is to receive a loan, business credit, etc. It is calculated by considering certain factors, including company size and type, length of operation, payment history, industry risk, debt, debt usage, and age of credit history. It is also determined by any legal filings that a business has, such as bankruptcies, judgments, or tax liens.
Benefits of having a good business credit score
Having a good business credit score can open your business up to many opportunities for growth and development. Improving your score should be a priority if you want your business to be successful. A good credit score can help your business in the following ways:
Increase your chances of qualifying for a bank loan – Your business credit score is a representation of your business circumstances. To determine whether or not to approve you for a loan, banks use it to help them in their assessment process.
Establish your stability, reliability, and credibility – Potential business partners, clients, and customers will have a positive impression of you if you have a good credit score.
Have more financing options – With a good credit score, your business can have better business tradelines, resulting in greater chances of investors and lenders extending credit to you.
Steps to improve your business credit score
Because of how crucial a good business credit score is in achieving the short-term and long-term goals of your business, knowing and implementing the best practices to make it happen is essential. Below are some tips for achieving good business credit:
First and foremost, you should deal with the legal process of establishing your business. Whether it is a sole proprietorship, partnership, limited liability company (LLC), or corporation, you should choose a legal name, business contact number, and others so that you can establish your credibility with the government and vendors. You should also acquire an employer identification number, business tax ID, or something equivalent, depending on where you are located, so that you can apply for business licenses, starts a business bank account, and so on.
The next step is to open a business bank account. This way you can avoid using your personal bank account for your business-related transactions. Your business bank account is key to securing an ecommerce credit card or other types of business credit cards. It is also valuable in building business tradelines that can be beneficial to expanding your operations in the future.
Once you have your ecommerce credit card or business credit card, use it for all of your business transactions. From buying supplies and equipment to streamlining employee expenses, you should use it every month to build your credit score and also earn rewards, cash back, loyalty points, and other perks.
Every time you receive your bills, make sure to pay promptly and in full. By doing so, you can prove that you have a good handle on your debts and show that you are capable of taking control of your finances. You can also improve your business credit score faster.