As a small business owner, you’re constantly on the lookout for opportunities to give your business an edge. Finding ways to earn more money or reduce costs can not only bolster your business profits, it can also help you to stay ahead of the competition.
You might not realize it, but good business credit can be a powerful tool to help your company succeed and grow. Here’s a breakdown of five of the best benefits you can enjoy when you put in the effort to establish solid business credit scores.
Benefit #1: Lending Confidence
When you take the time to establish good business credit for your company, it can give you the confidence to know that, at least from a credit perspective, you have a great chance of qualifying for financing when you need it. Good business credit can offer you an advantage when you apply for many types of financing, such as:
Not only can good creditworthiness improve your chances when you apply for financing, it may also help you qualify for higher credit limits and access larger amounts of capital.
Benefit #2: Saving Money
A good business credit score can save you money in both obvious and not-so-obvious ways. Naturally, when you have better credit you’re more likely to be offered lower interest rates and better terms from lenders and vendors alike.
Solid business credit can also save you money in areas you may not have considered:
- Good business credit may help you to secure lower insurance premiums.
- When you sign a new real estate lease or apply for new utility services, good business credit often results in lower deposits.
Finding ways to save is an important part of your job as a business owner. When you’re smart with your money, it can help to reduce expenses and increase company profits.
Benefit #3: Financial Separation
Establishing commercial credit can help you to keep your personal and business finances separate. Drawing this financial line of demarcation is important for several reasons:
- Separate business and personal finances can help make bookkeeping and tax preparation easier.
- You may protect your personal assets (e.g. your home, bank account, retirement savings, etc.) by keeping business debts under your business’ name.
- Eventually, good commercial credit scores may help you to qualify for financing without having to put up a personal guarantee.
It can be tempting to use your personal credit cards to cover business expenses. However, doing so could potentially cause some unwanted consequences in the long run. Yet when you work to help your business establish healthy credit of its own, you can reduce your personal financial risk.
Benefit #4: Valuable Rewards
Credit card rewards are another great perk you can enjoy when you establish good credit scores for your business. If you find a small business rewards credit card that matches up well with your business’ top spending categories, you can gain a lot of extra value simply by running your business expenses through the account.
Business credit card rewards typically come in the following varieties:
- Cash-Back Rewards
- Travel Rewards
- General Rewards
Keep in mind that most business credit card issuers will check your personal credit rating when you apply for a new account. If your application is approved, you’ll probably also be asked to sign a personal guarantee.
Setting up a free account with Nav can help you research which reward credit cards are a fit, based on your personal and business credit profiles.
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Benefit #5: Personal Credit Protection
As a small business owner, it’s not only important to establish a solid credit profile for your company. You also need to be conscious of the need to protect your personal credit scores from your business.
When you have solid business credit, you’ll be more likely to qualify for financing without having to supply a personal guarantee. This can protect you financially, but no personal guarantee requirement offers you protection in another way as well – it protects your personal credit reports and scores.
If your business credit isn’t well established, lenders and vendors are more likely to ask you for a personal guarantee when you apply for financing. Essentially, this makes you a co-signer for your business loan or credit card. Should your company fail to pay as agreed, the defaulted account may show up on your personal credit reports and could hurt your personal credit scores.
Additionally, some business credit cards report even on-time accounts to the personal credit bureaus. If this happens, you need to be extra careful to utilize only a small portion of your credit limits on these accounts. Otherwise, high credit utilization on these business credit cards could hurt your personal credit scores.
The Biggest Benefit of a Good Business Credit Score
As you can see, there are a lot of perks that come with building a good credit score for your business. The biggest perk is knowing that your business credit score will be an asset, not a hindrance, whenever you need to apply for financing.
Learning how business credit scores work is vital if you want to help your company grow and expand. One study revealed that small business owners who understand their business credit scores are 41% more likely to be approved for financing when they apply.
If you’re ready to start building better business credit scores, you can start by reviewing your credit to see where it stands now. A free Nav account lets you monitor your business and personal credit in one spot.
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This article was originally written on May 14, 2019 and updated on February 3, 2023.
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