Managing Your Own Business Credit (For Small Businesses)
November 5, 2016
Small business owners are entrepreneurs. They are successful because of their ideas, their passion, their drive. But they generally aren’t accountants, and as a result they are often unaware of just how important actively managing business credit is to their success. Small business owners agree that cash flow management is one of their top concerns. Actively managing their business credit can help small businesses ensure positive cash flow by:
Securing more financing at better terms. Good credit can ensure that small businesses get financing when they need it. According to the SBA, insufficient or delayed financing is the second most common reason for business failure. And, since most loan decisions below $100k are automated, the business credit file will often dictate the amount and terms of a loan. For businesses with poor credit ratings, top national banks may increase credit card interest rates on average from 9% to 18% and loan interest rates on average from 8% to 12%.
Ensuring you get needed supplies at affordable terms. Suppliers evaluate your credit and make decisions about how much credit to extend to you – perhaps a $30K credit line could have been $60K with a stronger business credit file. Good business credit can ensure that you get the supplies you need under the best possible terms, freeing up more money for your business.
Making smarter credit decisions on your customers. Knowing the credit of customers enables small businesses to provide better terms to creditworthy customers and avoid doing business with customers who pay slowly – both of which can lead to improved cash flow.
Protecting yourself against business identity theft. Actively managing your business credit file helps you ensure that fraudulent or incorrect information is not in the file. 15-30% of all commercial credit losses are due to fraudulent activity. It’s important that your business credit file truly reflects how good your credit is, and that you are aware of any inaccuracies and missing data so you can address them promptly.
This post has been excerpted and modified from the Small Business Administration website www.sba.gov