Business credit is one of the most fundamental elements of any healthy enterprise, and yet relatively few people know what it actually is.
To clarify, business credit is money loaned to a company by a third party – usually a loans company or a bank. It is an important part of business to understand because credit can greatly affect the success or failure of your company.
Just like normal credit, every registered company has a business credit score, valued using a number of different factors including whether you repay your loans, if you have had any prior financial misdemeanors, the state of your tax affairs, and the overall financial health of your company.
At some point, most businesses will need to request a loan. There can be countless reasons for this, but the most common (and sensible) reason to take out a business loan is to expand the company or add value to it in a meaningful way. As a result, business credit is crucial to understand because you will likely need to rely on it in the future.
This is what you need to look out for with business credit:
Credit reports show you vital information about your business
In order to receive business credit from a third party, a credit report will need to be drawn up. This involves a report drawn up by a specialist (usually a credit bureau) and essentially gives the individual or company considering loaning your business money the chance to check whether your enterprise is legitimate.
Details that are usually checked include information about your annual turnover, your credit history, and any other relevant information about you or your business. Credit reports allow lenders to assess the level of risk involved and decide whether they will get their money back easily or not.
If you need a business credit report, then you need to consult a specialist. Command Credit is a leader in business credit reports with offerings from Experian, Equifax, D&B, Trans Union, and Credit Reports World.
If you take out a loan, you need to pay it back on time
It goes without saying that if you want to make it as easy as possible to take out business loans, then you need to keep your credit score intact. Maintaining a healthy credit score isn’t rocket science; you just need to keep on top of your finances.
This means that if you take out a loan, you need to pay it back on time in the full amount. It is all too easy to fall behind on repayments, especially when you are overstretched financially, but if you start to fall behind, you will be punished when it comes to your credit.
If you fail to pay back multiple loans on time, you may find it difficult to take out another loan in the future, which is bad news if you’re trying to grow your company.
Keep on top of taxes, expenses, and company spending
If you want your business credit to be a benefit to your company rather than a hindrance, then you need to keep your finances simple.
This is a basic rule of business, but keeping up to date with your finances – whether paying taxes you owe, organizing expenses or acquiring capital – is the key to a healthy enterprise.
Business credit does not have to be complex as long as you maintain a strong credit rating and work with a specialist on your credit report. Then there is no reason why business credit can’t benefit your company.