When businesses first start out, most are primarily concerned about things like growth and revenue. But another item that should be at the top of their list is building their business’s credit score.
A business’s credit score is similar to a personal credit score, in that it can be used to make determinations on the business’s ability to pay for supplies and services, and repay loans.
But a good score does more than simply open the door to a loan. A business with a good score can leverage that to save the company money.
As the old adage says, you have to spend money to make money. Sometimes, to take advantage of an opportunity, a business owner needs access to more funds than they have immediately available. Business loans both help build credit as well as help you take advantage of growth opportunities.
Certainly, a decent credit score allows you access to business loans. But a good credit score provides you flexibility in finding one that can save you money. Business owners that understand their credit score are 41% more likely to be approved for one.
With a good credit score, you won’t be forced to choose from only a few loan options. Instead, you’ll have access to a larger number of business loans from which to choose. This means being able to pick the loan that has the features and benefits that fit your business well.
But even more important than the number of loans is the interest rate. With a low score, you could be stuck with whatever interest rate is available. With a good score, you may qualify for lower interest rates. For instance, a loan from the Small Business Administration may have a rate as low as 6% APR, but with a poor credit score, you may not get past the pre-qualification stage.
Trade credit is another cost savings that your good business credit gets you.
For business owners, buying supplies and paying for services can be rough. You’re getting the items now, but you won’t be paid for your work for some time.
With trade credit, suppliers and service providers defer payments, giving you NET terms for the items and giving you a grace period of 15, 30, even 60 days before payment is due.
But of course, the length of the grace period you get to pay your suppliers back is largely based on your business’s creditworthiness. With excellent business credit, you may be able to get your supplies, complete your work, and get paid before the bill comes due.
Your business’s credit score is important to build up so that you can separate your personal financials from your company’s as early and as completely as possible. But your credit score does more than provide you opportunities for financial assistance. It can also help you better align your income and resources, saving you money in the long run.