The Importance of Business Credit

Business Credit
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When people set up their own businesses, they will require access to a steady stream of funds. This is especially so for small and midsize business owners, who rely extensively on these funds to drive their businesses. Not all business owners have sufficient capital of their own for funding their business requirements.  So, the only recourse available to them involves taking credit.

What is Business Credit?

Business (or commercial) credit denotes the funds a company borrows from a bank or a financial institution to meet various requirements. Banks and financial institutions provide business credit in the form of loans such as:

  • Start-up Loans: This is among the first loans taken by a company in its lifetime. It usually provides funds for supplies, wages and other business-related expenses.
  • Working Capital Loans: These loans enable the company to meet costs in the short-term to continue operating.

Experian, Equifax and Dun & Bradstreet are the three predominant commercial credit scoring companies. All these firms use different scoring systems for evaluating businesses. However, unlike personal credit scores that range from 300 to 850, business credit scores range from 0 to 100.

Why Is Business Credit Important for Your Business?

Commercial credit enables business owners to:

  • Obtain funds for capital expenditures, expansion, staffing etc.
  • Enhance the liquidity of the business, thereby enabling it to respond promptly to time-sensitive requirements
  • Obtain the cash flow necessary to stay operational
  • Plan the future growth of the business
  • Avail of lower interest rates on business loans, insurance premiums and lease payments, thereby enhancing their cash flow even more
  • Protect their personal credit scores and,
  • Increase the value of the company because the credit score of a company is fully transferable when the owner sells the business

How to Build Business Credit

Building business credit is a slow and steady process. To build commercial credit:

  • Avoid mixing personal and business expenses
  • Register the company, apply for the federal Employer Identification Number (EIN) and use its legal entity for obtaining funds to build business credit
  • Open a business checking account and obtain a business credit card
  • Use your business accounts to pay for all your business-related expenses such as rent, cellphone expenses etc.
  • Use your business credit card for making purchases and repay the amount in full and on time as much as possible
  • Keep your credit utilization ratio as low as possible to improve your business credit score and,
  • Consider leasing equipment to grow your credit


Do Your Require Business Credit?

The Small Business Credit Survey (SBCS) provides details on the financing needs and borrowing experiences of businesses with fewer than 500 employees. Conducted by the seven Federal Reserve Banks, the 2015 survey reveals that:

  • Around 22 percent of all firms experienced cash flow challenges
  • Approximately 13 percent of startups and microbusinesses found credit availability to be their biggest business challenge
  • In terms of loans, half of all firms received less than the amount they requested

At Midwest Corporate Credit, we connect small business owners with the financing they need. At the same time, we deal with the often lengthy correspondence they share with the lenders to speed things up. Our hassle-free application process and approval efficiencies of over 97 percent enable us to ensure that entrepreneurs all over America can chase their dreams and, more importantly, accomplish them without any funding issues. To get a funding estimate, click here



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