The Basics of Business Credit

The moment you turned 18, you probably had a flood of credit card applications get mailed to you. Hopefully, someone taught you better than to apply to them all (and if not, we can help with that)! But what happened when you started your business? Did you get a flood of credit card applications magically at your door? Probably not. 

Business credit works the same as personal credit (you borrow money, you are charged interest, you pay it back), but the term can also refer to the creditworthiness of the borrower themself. And, just like with personal credit,  business credit will come with a credit score and report. 

Business Credit matters a lot when you’re looking to finance your business. If you have a poor score, banks won’t want to loan you money and individuals are less likely to invest. Getting your business off the ground can be challenging if you need some serious capital to get it started. And if you’re thinking of just using your personal credit, that could cause you to be wholly responsible for the debt and the debt collectors can come after your personal assets. 

If you’ve never taken a line of business credit, don’t be scared! If managed responsibly, business credit can have a very positive impact on your business! It can open up all kinds of financial doors, giving you the opportunities you need to grow. 

But how do you get business credit? 

1. Choose a business structure. Business credit is easier to get if you are a corporation or an LLC, instead of a sole proprietor. Follow your state’s guidelines on how to register your business. 

2. Open business accounts. Open a bank account in the name of your business, and then take out a credit card or business loan in the name as well. 

3. Use your Credit--Wisely! Don’t take out too many cards or loans at once. Start small and develop good habits by keeping your balance low and paying it off quickly. Remember, when using a credit card, you need to ask yourself: “I have $20,000 in credit, but do I have $20,000 to pay it off?” If the answer is no, then you actually DON’T have $20,000 and you need to only use the amount of credit you can securely afford. 

4. Check your score every quarter. You can’t often get free scores like you can with personal credit, but go ahead and pick a company to become a member with so you can monitor your score. This is an investment in your business, as you’ll need a good score to grow. 

Think of getting business credit as an opportunity to start your business off on the right foot. Making good choices, forming good spending habits and seeing your score increase quarter over quarter will improve your money mindset and put you in a positive, confident place. 

At KKS Audit Financial Services, we partner with businesses to help guide them through the world of business finance. We have helped many clients feel more secure in their financial goals, systems and processes, and stand with you as we move through this journey towards better financial habits. Contact us today if you feel ready to take the first step toward true financial freedom.