July 16th, 2019 | Updated on June 3rd, 2021
Sometimes most business owners don’t realize the importance of business credit until it’s too late. That’s what happened to Rodrigo Martinez, the owner of a coffee shop.
Mr. Martinez owns a coffee shop in his hometown, and his first year in business went great.
After one year in business, his customer base started growing out of nowhere (well, his coffee is the best in town, so there’s that). But now, he needed to hire more staff to meet the increasing demand.
After inquiring about getting a small loan from multiple banks, Mr. Martinez was rejected by every single one of them.
He was shocked, especially because his business had been doing so well. But what he hadn’t considered was his business credit, and how it was severely limiting his chances of future expansion.
But don’t worry, if you’re in the same situation, you can build business credit quickly with this guide from Camino Financial.
Business Credit Score Is Like A Good Blend Of Coffee
Any coffee shop that is planning to expand and succeed and will need to help of a loan needs to know about business credit.
A business credit score is very similar to a personal credit score. It is a score given to a business based on credit history that is used by banks and other lenders when considering the business for a loan.
Most business owners ignore their business credit score, mostly due to not knowing how beneficial a good business credit score can actually be. Here are just a few ways a good business credit score can benefit a business:
1. It Can Save You Money
Everyone loves money, and when business owners have the staff to pay and workspaces to maintain, every extra dollar goes a long way.
A good business credit score will get you more favorable terms on loans, leases, and credit history.
Having things like lower interest rates will save you money in the long run.
2. It’s easier to get approved for Loans
Even if you think your business is doing perfectly, you never know when you will need some extra capital to get through a tough time.
If you have a good business credit score, you are much more likely to get approved for a loan when you need one.
3. Loans May Not Require Collateral
Getting a good business credit score can also keep your personal assets safer. If you have a good business credit score lenders may not require you to put up collateral.
While this can be assets from the company, some business owners are forced to put up personal assets as collateral.
4. Personal Credit History is Separate
Some business owners get discouraged due to having a poor personal credit score, and falsely believe that will keep them from obtaining a good business credit score. In reality, your personal credit score has no impact on your business credit score.
5. The Case of Mr. Martinez
Let’s go back to the case of Mr. Martinez. He all of his loan applications were rejected, and he needed a way to build his business credit.
He started by simply getting a business credit card and making certain payments for inventory with it. He used it to pay for milk, coffee cups, coffee grains, and other ingredients.
He also convinced his suppliers to let him open a line of credit with them, so he could pay them back for supplies at a later date.
After a few months of making timely payments, he built his credit up to a sufficient level and was approved for a loan for his business.
6. Relax, sip on your latte and watch your business grow
You don’t want to find yourself in Mr. Martinez’s shoes, in need of capital and with no way of getting it.
That is why building business credit is so important for business owners.
Fortunately for you, you have the knowledge of how crucial business credit scores can be.
Now you can take that knowledge and use it to get ahead on your own business credit score, which will open up many doors for your business going forward.