The Importance of Business Credit

loan-documentsIn the same way as personal credit is a pillar of your financial value, so too is business credit a pillar of the financial value of your business. Business credit is not just important if you want to get a business loan or line of credit (though it is obviously important there), it can also be important in day-to-day business interactions. As such, establishing and maintaining business credit should be a focus for any small business owner.

Many small business owners plan never to need debt instruments to build their business. Either they plan not to grow so fast as to need it, or they plan to bring in equity partners as needed. But, no one can see the future, and what your business needs in ten years can be very different than what it needs today. As such, being prepared is never a bad thing, so that, should a credit need arise, your company is ready.

Additionally, many businesses will check the credit of a business looking to do business with them. In the same way as a landlord will often pull credit of a prospective tenant, even though no loan is being established, many vendors will pull a business’ credit to ensure that business is in good standing and likely to be a good long-term partner. And in the same way as better credit leads to better interest rates from lenders, better credit will often lead to better terms with vendors, as they are taking less risk.

For those considering ever selling their business or bringing on equity partners, again business credit can be important. This will be a part of the review in either case, as it will determine the long-term viability of their investment. And while a lack of business credit will not definitively dissuade an investor or someone looking to purchase your business, having positive business credit can certainly help bolster the value of the company.

So if you have not begun building your company’s credit, it might be time to do so. This can be as simple as establishing a few small lines of credit with financial institutions, and paying certain bills with them. Then, use your revenues to pay these off. This will show that you can properly use credit as a company, and will go a long way toward building your company’s credit reputation.

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