7 Key Reasons to Build Business Credit This Year

Is your business considered creditworthy? As individuals, our creditworthiness is largely identified by our credit reports and FICO scores.  I'm sure we can all agree that the three-digit number plays such a significant role in our lives, from determining if and how much credit we qualify for, to what interest rates we pay, our insurance premiums, employment opportunities, etc.

But as a business owner, creditworthiness takes on an entirely different meaning. Did you know your business has the ability to establish its own unique credit profiles, scores, and ratings that are completely separate from you and your personal credit profiles?

Unfortunately, the majority of entrepreneurs and small business owners rely solely on their personal creditworthiness to secure financing for their business without understanding the need to build business credit.

Here are seven key reasons to start building a creditworthy company this year:

1. Safeguard your individual credit reports and FICO scores—with business credit your company’s business debts and financial responsibilities will report only on your business's credit reports. For example, some of the best small business credit cards in the marketplace are designed to help you establish business credit while protecting your personal credit.
2. Establish true personal and business separation—by separating individual and business credit, you do away with the risk of co-mingling funds—and this consists in the co-mingling of credit, credit profiles, credit cards, etc.
3. Limit your personal liability – the more your business can qualify for credit based on its own creditworthiness the less importance your personal credit plays a role. By building business credit your company can acquire short term financing with suppliers and in most cases you will not be required to supply a personal guarantee.
4. Preserve your cash – as a business your company can acquire credit from suppliers, companies, and merchants with net 30 to 90 day terms. This allows your business to preserve its cash while obtaining the products/services it needs to operate and/or expand.
5. Maximize funding opportunities—by meeting lender compliance guidelines during the initial phase of the business credit building process your company will be in a much greater position to qualify for additional types of financing.
6. Develop a business asset—a creditworthy business is an asset that is attractive to potential business partners and/or investors. It not only improves the company’s ability to secure financing but also enables an interested party to review the company's credit profile, scores, and financial information.
7. Obtain higher credit limits—did you know a creditworthy business can obtain 10 to 100 times greater credit capacity compared to what an individual can obtain using personal credit? Financing tools such as business credit cards carry much higher limits compared to personal credit cards.

Now that we covered all the compelling reasons for you to build business credit this year, it’s time for you to take action so you can realize all the benefits.

There’s no question that at one point your business will require an influx of cash to cover unforeseen expenses, overhead, expansion costs, new equipment, etc. The key question is whether you should continue to stick to the status quo by only relying on your personal credit or start building a creditworthy business so you can minimize the risk of putting your personal credit and personal assets at risk.