What is Business Credit?
By Turtle Credit Team
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The concept of credit is not just for individuals. Businesses need credit too! A business can buy what they need now and make payments for it at a later date. Of course, there is much more to it, and here is everything you need to know about business credit.
Business Credit Score
Just like you have your credit score, your business does too. This tells the lenders if you are a risk they should take or not. The higher your score, the more likely you are for being approved for credit. You need to keep your score as high as possible.
The most widely used and unique company that informs lenders about your credit risk is Dun & Bradstreet. It uses the Paydex score to supply information to lenders. A Paydex score ranges from 0-100 with a score of 80, meaning a company makes on-time payments.
Types Of Business Credit
If you have an established business or a small start-up, it doesn’t matter. All businesses can opt for these various types of credits.
#1. Revolving Accounts
There are two options you have within this category. You can either apply for a credit line or have your own small business credit card. For your business credit card, you will be given a credit limit by your lender. The bank only requires you to pay a minimum payment out of the total. However, it is better if you clear your dues within the month as you will have to pay a high-interest fee later on if you don’t.
A line of credit works the same way as a business credit card, but there is one key difference. You can secure a line of credit with an asset such as real estate or cash for a higher credit limit. As long as you pay your due balance, you can charge more expenses to your credit limit again with revolving credit limit.
#2. Installment Accounts
From start-up loans to commercial loans, these are loans you take out for anything that you need to run your business. This is best utilized for extremely expensive items the business might need. This way, you can pay back the amount over a specified period. The amount you borrow is fixed, and the interest is also fixed as it won’t go higher.
#3. Vendor Accounts
These are Accounts (Merchandise, Services, etc.) that allow your business to pay for a good or service you have purchased after making the purchase. These accounts can vary. Some offer 30 days, others may offer a 90, 60, and even 15-day period for a business to pay them back.
This is an ideal option when you want to extend your business’s cash flow and need to make purchases at the same time. If the vendor you have chosen is reporting to a commercial credit bureau, then this can even do wonders for your business credit provided you pay on time.
#4. Charge Cards
You don’t often see these types of cards around anymore – besides American Express. However, they work just like a credit card with one key difference. Instead of paying a minimum amount every month, you pay the entire credit amount (balance) each month.
How To Build Business Credit
Do the Important Work
There are a few things you need to have in place for your business to appear established.
- You should list your telephone number in various business directories such as Google, Yelp, or any other internet search engine.
- Open up a business banking account.
- Open a business credit file with Dun & Bradstreet.
All of these steps will help you get in on the business landscape!
All About Relationships
A factor that goes into every decision is trust. A vendor or lender needs to trust that you will pay on time. This is why you must cultivate a good relationship based on trust and mutual respect. This will help you to easily get credit when times are tough and make things easier for your business.
Have A Business Credit Card
This will make it convenient for you to build credit over time. However, don’t overspend and be sure to use the card wisely. By doing so, you will be able to increase your score over time.
Make Payments On Time
Never delay your payments. Late payments will just ruin your reputation and your credit score in the long run. Your Dun & Bradstreet score will also plummet, and lenders will be hesitant about giving you any money.
This is the most important factor when it comes to your business credit score. So, make sure you always make timely payments.
Final thoughts
Every business needs credit. Without it, expanding your business can be limited. Therefore, establishing a good business credit score could very well be the lifeline your business needs. So be wise and smart about it in your decision-making process. Finance decisions are not easy but always opt for credit when you need it, and when you know, you can pay it back!
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