Many people running a small business simply use their own strong credit score to establish credit for their business. While this can be a tempting option, the reality is that building business credit is essential to the long-term success of a business. The main reason most businesses eventually begin building business credit is to create an asset. This asset can be used to get financing for the business based on the credit worthiness of the company – not the owner. While this is an essential reason in and of itself, there are three other huge reasons to build business credit.
1. Establishing business credit gives you access to larger credit capacity
A business has 10x-100x larger credit capacity when compared to personal credit capacity. When you establish your business’s credit worthiness, you’ll be able to qualify for financing based on factors that apply only to your business. If you don’t build business credit, loan decisions will be based solely on your personal finances, and your pool of available credit will be much smaller.
2. The value of your company will get a boost
When your company is deemed credit worthy by the powers that be, you’ll have a powerful advantage when it comes to financing ability. But remember that this isn’t just for your immediate benefit. If you wanted to sell your company or secure an investment from an individual, this business credit is 100% transferable and is considered a tangible asset.
3. Your personal credit is protected
The other benefits in this article focus on the importance of building up your business’s credit, and they’re important, but remember that there’s even more at stake here. If you use your personal credit to get loans for your business, you’re personally on the hook.
On the other hand, improving your business credit allows you to limit – and often eliminate – the use of personal credit. The company will have its own credit rating, which will not have any impact on your own credit rating. You won’t have to co-mingle credit with your business, your personal debts won’t be affected by your business, and your personal assets can’t be touched in the event you can’t make the payments on a business line of credit.
Whether you’re just starting to establish business credit, or you have it and need to improve it, Leaf Credit Solutions looks forward to helping you find the perfect plan forward.