November 13

Understanding Your Business Credit



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Understanding Your Business Credit

Every business comes with lots of opportunities as well as responsibilities. Business credit gives an inkling of a business financial strength and capability to enable proper management of debt. The eligibility of businesses in obtaining loans, lines of credit, or business credit cards is dependent on its business credit.

.Business owners must be aware of the importance of credit score and also its significance to their businesses and how to improve it with time.

Importance of Business Credit

Similar to personal credit, all businesses require a good credit score in order to secure affordable financing with reasonable rates. Businesses with high credit scores usually receive favorable terms when opening new accounts, such as business credit cards with low-interest rates, business lines of credit with high credit limits, or business loans with reasonable repayment terms.

.A bad credit profile can prevent a business from securing funds. Lenders are usually reluctant to establish new accounts for businesses with low or no business credit scores.It is commonplace for businesses with low credit scores to pay higher interest rates or receive less manageable repayment terms compared to businesses with high credit score, when its application has been approved. Unavailability of affordable funds with reasonable repayment rates can lead to an inability to secure funds during financial emergencies.

How to Improve and Maintain Business Credit

Knowing how to improve business credit begins with understanding how business credit are determined. Business credit scores take into consideration the following:

  • Number of years in business
  • Lines of business credit applied for and established in the last several months (h
  • Any collections or tax liens against the business
  • Credit accounts payment history

New businesses may fall short in all of these categories, therefore, having no or low credit. A low credit score may ensue in well-established businesses who had financial challenges in the past. In any case, there are guidelines to follow in building business credit.

Business Credit Cards

.Business credit card assists a great deal in building a business credit. It is easy for companies that are registered, having an active bank account to get approved for a business credit card. As soon as your credit card is approved, use it responsibly. Ensure that the credit utilization ratio relatively low compared to the total credit limit available, and also make payments on a timely basis. Credit card activity usually helps in determining and building your business credit score.

Business Lines of Credit

Similar to a business credit card, a business line of credit can help to build a business credit score. A line of credit is a means of securing funds that can be used whenever a need arises just like a credit card, often times it carries a higher credit limit and a lower interest rate. Also, low credit utilization and prompt payments can help build business credit.

Responsible Business Loan Management

It is not easy to obtain a business loan when a business has bad credit. Obtaining a business loan through an online lender or alternative loan provider can be a better means of securing funds without problems. After obtaining loans making prompt repayment can improve your business credit score.

What’s the good news?

It is very important to have a strong business credit as it aids building a successful and profitable business.

The good news is that there are various ways to build business credit such as business credit cards, lines of credit, or business loans. Proper management of these is important; including payment of debt on-time. 

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