Introduction To Business Credit

Business Credit is an important tool for any business and can be useful for obtaining funding and maximizing a business owner's borrowing power.

What is business credit?

Business credit is credit that is obtained in the name of a business.

That is a start, however, one key thing we need to understand about business credit is that it is NOT built on the same credit system as personal credit.

Business credit is different from personal credit due to personal credit has three big credit bureaus that collect and sell data on consumers, and then there is Fair Isaac which generates "FICO" scores for those consumers based on the data in their credit reports. If a consumer wants to get a loan, the loan and terms they are able to get will depend greatly on their credit scores.

Business credit works roughly the same way, but the business credit system is completely detached from the personal credit system with examples such as:

-Business accounts won't be reflected on a person's personal credit.

-Personal credit will not necessarily affect a person's ability to obtain business credit.

-The companies that score business credit and maintain business credit reports and data are usually separate from those that manage personal credit data, reports, and scores.

-Business credit is based on the business's ability to pay back a loan, NOT on the business owner's ability to pay.

You may wonder why does this matter?

For one thing, it matters becase sometimes businesses need money to fund new expansions and other big expenditures. For the business owner, having a strong business credit profile means that their borrowing power will probably be more than DOUBLE what it would be if they did not have business credit.

What is business credit used for?

-A convenient and simple way to order office supplies and manage expenses related to running an office.

-A large credit line for financing the day-to-day operations of a business.

-Loans for funding new projects or products, marketing campaigns, and more.

-Buying or leasing real estate for the operation of the business.

-A primary or secondary funding source for start-up or expansion purposes.

The key here is that business credit is used for the business. In the same way, you should keep your personal finances separate from those of your business.

Even though business credit and personal credit are two different paths, one should work on personal credit and business credit. This will help one with double the borrowing power needed.