The Importance of Having Good Business Credit Scores
The majority of the public knows, and entrepreneurs know acutely, that most new businesses fail. What isn’t so widely broadcast is that most new businesses fail due to poor cash flow management skills.
Here’s the trick: most entrepreneurs fail to realize that they can separate their business and personal credit files. That means that if you’re not so great at keeping up with the checkbook in your personal life, you can still employ a sound accountant or use software to make sure that your business finances remain sound. Here are some of the reasons why it’s so important to monitor and maintain good credit scores when you’re running a relatively new business.
1. Personal credit and business credit look different to your constituents.
In this context, the term constituents means anybody who affects your film business. That can be customers, potential customers, banks, lenders, creditors, marketing firms, etc. If you don’t look viable on paper, you may not look viable in person. Many, many small businesses are constrained from growing due to their inability to get funding, and separating business and personal credit files is essential to defeating this hurdle.
2. Quick loan approvals are key to growing a business.
As noted, poor cash flow management is just one problem in running an entrepreneurial business. One of the easiest ways to get out of that pickle is to apply for a loan from a bank or seek alternative funding options. However, a distinct lack of information about your business is sure to lead to a denial of credit approval. Ensuring your business credit report is well established and positive is key to staying in business.
3. Low interest rates on loans can be critical.
In a vibrant economy, even the most threadbare business might be able to get credit, but can you get credit at attractive rates? The interest rate for any loan, be it from a bank, an investor or an alternative source of income, is tied to the credit score of the business. If you have a good credit score, your business is going to qualify for the lowest interest rate your lender offers.
4. Better businesses get higher loan limits.
Mo’ money, mo’ money is the name of the game if you want to grow your business, franchise, or expand operations. Credit departments at banks and lenders extend higher loans to businesses that have strong credit scores and profiles. Working ahead to improve your credit score when you’re just starting out could pay positive dividends when you feel it’s time to expand.
5. Solid businesses attract other investors.
Operating as an entrepreneur is much more fluid these days than it was in the days when founders were solidly engaged with their brand their entire lives. If the day comes when you want to sell the business, expand it, franchise it, or form a partnership with a third party that wants to invest in your concept, a solid business credit history will surely help you in the long run.
6. Business credit is the surest way to protect your personal credit.
Small business lenders will look at both your business credit and personal credit, sure, but the cold fact is that businesses can obtain more funding than personal borrowers. With business credit, you not only have access to potentially higher loans and capital at better interest rates, but you also separate your personal and business financial obligations in the event the worst-case scenario comes to pass.