The Amazing Benefits of Business Credit You Can't Afford to Miss

The Amazing Benefits of Business Credit You Can't Afford to Miss

Fundamentals of Business Credit


In every business, the role of business credit is almost indispensable as it is the backbone of every financial activity of the business. It is also a very influential tool as long as business loans are involved.

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What then is Business Credit?


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As complicated as the term may sound, business credit is simply any financial credit acquired from a business venture. It is operated by a system that differs significantly from that of personal credit.

Differences between Personal and Business Credits


Basically, for every personal credit, three government administrative bodies are responsible for the collection and sales of consumer data while the Fair Isaac is responsible for allocating FICO scores to consumers on account of their credit reviews. This scoring determines whether or not the consumer in question can receive a loan, and under what conditions.

However, a business credit differs from personal credit in the sense that:

  • Accounts used for business purposes do not affect personal credit status.
  • Both credits cannot be audited, scored, and maintained by the same financial company. Each type of credit account has a distinguished manager.
  • The potential of a business (not just the owner) to settle loans and outstanding debts actually defines business credit.
  • In most cases, personal credit plays no significant role in determining whether or not a business credit can be acquired by a business owner irrespective of the fact that personal credit record may be reviewed during loan application.

In fact, personal and business credits are not similar in many ways and should not encroach into each other.

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Why are These Differences Important?


The ability to obtain loans at decent rates is something every business should possess, and the differences between personal and business credits are essential to the borrowing capacity of the business. This is because the business would be able to get loans with business credit faster and more efficiently than with personal credit.

But acquiring a business credit just for the sake of being entitled to a loan would make absolutely no sense if the other uses are not known and harnessed.

Uses of Business Credit


  1. It serves as an adequate source of finance for businesses.
  2. In being a source of finance, it can either be the main source or simply a plan B for new business owners as well as those who intend to expand their businesses
  3. Business credit can be used to acquire a property for the business.
  4. With business credit, business owners can easily fund the expenses required to run their businesses successfully.
  5. Business credit can also be used to increase the borrowing capacity of business owners so that loans can be used to boost business activities.

The uses listed above truly highlights the reason why you should not combine your personal credit with your business credit and vice versa. You should also never use your business credit for personal matters as this may also affect its potency in your business.

Why Then Should You Have a Business Credit?


By the time you finish reading this book, you'll definitely come to an understanding of the reasons why you need to have business credit. Let's discuss these reasons one after the other.

Benefit 1

Business Credit Is Less Costly

This might amaze you, but business credit is the one thing that gives you easy access to a loan at good interest rates irrespective of the nature of your credit. While you can very easily finance your business with a home equity loan, credit card, or an individual unsecured loan, you should know that overall costs would remain an issue. This is because it costs more to finance your business through various sources other than a business credit, and this extra cost varies with your credit status.

If your personal credit is of a reputable status, it may be able to perform up to what your business credit can do. Nonetheless, you should understand that much more time and resources would be required to grow your personal credit to the level where it can compete with your business credit.

To explain further, let's have an illustration where your personal credit is striving just fine, you've got fair interest rates on your credit cards, you're a homeowner and can easily get a 9% interest rate on an unsecured individual loan. Here's how your alternative for a loan would be:

Category of Loan Amount ($) Interest Rate (%) Cost of Interest ($)
Credit Card 50,000 11 25,400.45
Unsecured Individual Loan 50,000 9 20,321.00
Home Equity Loan 50,000 7 15,441.85
Loan on Business Credit 50,000 7 15,441.85

Having the figures above in mind, you'll realize that financing your business with your credit card should not even be considered an option because you might only end up servicing the loan with more than 50% of the worth of the loan.

Secondly, an unsecured individual loan should not even cross your mind - even if it costs less than a credit card - because if something goes wrong, you'll begin to pay some hidden fees for financing your business with your personal credit.

Finally, a home equity loan will not also be convenient - even if it costs the same as a business loan - because you'll only end up leaving yourself at the risk of losing your home after you must have made a mess of your personal credit.

In a nutshell, it is unwise to waste resources in building up a personal credit for our business when you can easily harness the benefits of a business loan at reduced costs.

Benefit 2

Business Credit is the Most Efficient Way to Gather Finances for Your Business

It is almost impossible to run a business with very little or no funds as funds constitute an essential aspect of every business despite being one of the most difficult resources to obtain. With business credit, all the fuss usually involved in gathering business funds is greatly eliminated. It is also a useful tool in dealing with cash flow related problems encountered in any business.

Below is an illustration of the efficiency of business credit in providing funds for your business.

A restaurant owned by Chloe in a well-known part of Texas was very popular for its unique meal services. Having multiple workers and advanced food machines, the restaurant bloomed and expanded and became everyone's favorite dinner spot.

A certain year came when Chloe experienced tough times in her personal life. Her house, as well as her sister's shop, were burned to ashes in a nearby wildfire. Chloe's personal credit was greatly affected as she had to help her sister settle her debts as well as clients who had already paid for the good they did not get to receive.

Before the fire, Chloe had been funding certain projects in the restaurant with her personal credit, and her restaurant had just received a contract that would require them to spend up to $25,000 at initiation before they begin to make any profit.

The excitement of acquiring the contract vanished when they had to give it up for another bidder.

If Chloe had been managing her business with business credit, she'd have had something to fall back on when this issue arose, and there'd be no need to forfeit the contract. She would have been able to expand her restaurant and even build or buy another home if she had been running her business with business credit.

From Chloe's predicament, we can deduce that:

  • It is important to separate personal and business credits. If Chloe had done that, her business wouldn't have suffered a loss when her personal credit did.
  • Business credit is very crucial in the operation of every business irrespective of what is required to build it. It is better to go through the hurdles of 8 establishing a business credit than to face the kind of loss Chloe had to encounter.
  • No business should be operational without business credit. It can save your business from a whole lot of pitfalls and even keep it from shutting down.

Benefit 3

It Helps You Distinguish Your Business Funds from Your Personal Funds

Apart from saving your personal credit and even your personal belongings, there are several other reasons to keep your personal credit away from your business and business credit.

One of them is so that the reputation of your business would not be brought under any form of subjection. Even if you can effectively manage both credits without challenges, legal and financial institutions, as well as your investors, may not think the same way as it is unlikely that a legitimate business can be operated with personal credit.

You may end up plunging your business into debt and losses you ought to be free from when you don't draw a fine line between your personal and business credits. Your personal affairs may also suffer deficit if you fail to establish the differences clearly.

If for example, you are used to bringing your personal credit into your business and financing your business operations from your credit cards. Although things may seem to be working out just fine, don't be surprised that there'll come a time when you'll lose balance and debts would begin to accumulate - after you must have exhausted your credit cards. Your business may still be waxing strong - no doubt - but you personally may have nothing to fall back on.

At this point, your business may shut down if:

  • You or your loved one is involved in any emergency that would require money.
  • Your business accumulates debts and requires immediate funding. In this case, your income may be jeopardized, bills begin to pile up quickly, creditors begin 9 to visit often, and your credit gets messed up. Before you know it, you're bankrupt!
  • You run into complications with your personal credits, which in turn affects the operations of your business. In this case, there'll be no source of finance to foster the growth of your business.

While it may be beyond your power to completely prevent the scenarios above from occurring, you can place yourself in a position where you'd have a better handle over the entire situation by separating your personal and business credits.

In conclusion, not separating your personal credits from your business credit would in one way or the other lead to a deficit or loss in either of them, which might consequently lead to financial decline.

Benefit 4

It Reduces the Overall Cost of Running Your Business

Every business aims to grow efficiently while reducing the overall cost of operation. Business credit is the one tool that makes this kind of growth possible as it assures you of decent interest rates for loans and also reduces the cost of leases and insurances. In fact, your overall cost of operation would be drastically reduced when you make use of business credit.

As an illustration, imagine that in one business month, through your business credit, you're able to save:

$100 from interests,
$60 from insurances,
$70 from leases on rents

This totals to $230 every month and $2,760 every year. In 10 years, it amounts up to a whopping sum of $27,600. Now if a business that is only able to save $100 on loan every month can lay hold of $27,600 in 10 years, you can imagine how much growth the business will experience.

Money saved can also be used to settle business debts and also provide necessary funds for the various operations of the business.

It is definitely up to you to decide if securing the financial future of your business and personal affair is worth the little token of building business credit or not.

It Reduces the Overall Cost of Running Your Business

So far, so good, we have been able to establish four vital reasons every business should run with business credit.

Before you start to consider the time, resources, and energy it would cost you to create business credit, you should first and foremost consider the repercussions of running a business without one. In the long run, you'll get to realize that both your business and personal affairs would be greatly affected by your leaving out business credit.

In a nutshell, you cannot afford to run your business venture without business credit as it would be rather harmful than good to you.

Why are These Differences Important?


The ability to obtain loans at decent rates is something every business should possess, and the differences between personal and business credits are essential to the borrowing capacity of the business. This is because the business would be able to get loans with business credit faster and more efficiently than with personal credit.

But acquiring a business credit just for the sake of being entitled to a loan would make absolutely no sense if the other uses are not known and harnessed.

Uses of Business Credit


  1. It serves as an adequate source of finance for businesses.
  2. In being a source of finance, it can either be the main source or simply a plan B for new business owners as well as those who intend to expand their businesses
  3. Business credit can be used to acquire a property for the business.
  4. With business credit, business owners can easily fund the expenses required to run their businesses successfully.
  5. Business credit can also be used to increase the borrowing capacity of business owners so that loans can be used to boost business activities.

The uses listed above truly highlights the reason why you should not combine your personal credit with your business credit and vice versa. You should also never use your business credit for personal matters as this may also affect its potency in your business.

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