Nowadays, building business credit is essential to the success of any company. Good business credit can help you secure loans, lines of credit, and other financing options to help you grow your business. It can also help you get better terms on those financing options and improve your chances of being approved for financing in the first place. But what exactly is a business credit, and how do you build it? Read on to find out more at https://www.thebusinesscowboy.com/.
What basically is Business Credit?
First things first: what exactly is business credit? Business credit is a measure of a company’s financial health, similar to individual personal credit scores. Just as personal credit scores are used by lenders to determine whether or not to extend financing to individuals, business credit scores are used by lenders to determine whether or not to extend financing to businesses.
There are a few key differences between personal and business credit, though. For one, business credit scores are usually based on information from business-specific credit reports rather than personal credit reports. Additionally, the criteria used to calculate business credit scores can vary depending on the lender. That said, you can follow some general tips to build good business credit.
Pay Your Bills on Time
This one should be a no-brainer, but it’s still worth mentioning. One of the biggest factors in both personal and business credit scores is payment history—meaning whether or not you’ve made your payments on time. Therefore, one of the best things you can do to build good business credit is to make sure that you pay your bills on time. This includes everything from rent and utilities to supplier invoices and loan payments.
Keep Your Debt-to-Income Ratio Low
Your debt-to-income (DTI) ratio is another important factor in both personal and business credit scores. DTI measures how much debt you have relative to your income; in other words, it tells lenders how much of your income is spoken for by existing debts. The lower your DTI ratio, the better—so if you’re looking to improve your business credit score, it’s a good idea to focus on paying down your existing debts as much as possible.
Maintain a Healthy Mix of Credit Types
Having a healthy mix of different types of credit accounts is also important for both personal and business credit scores—particularly if you’re trying to build up your credit history. Different types of accounts include:
- Installment loans (like car loans).
- Revolving lines of credit (like credit cards).
- Mortgage loans.
As long as the balances on all of your accounts are being paid on time and in full each month, maintaining a mix of different accounts can help boost your score.
Establish Lines of Credit with Suppliers and Other Vendors
One way to help build your business credit score is to establish lines of credit with your suppliers and other vendors. This means you set up an arrangement whereby you can purchase goods and services from them on credit rather than paying for everything upfront. Then, as long as you make your payments on time and in full each month, this can help improve your business credit score.
Conclusion: You can start building good business credit today by following these tips—paying bills on time, keeping debt-to-income ratios low, and maintaining a healthy mix of different types of credit accounts. And as your company grows, so too will your access to the financing options you need to keep growing!