“You only have to do a few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett...
Listen up folks, if you're running a business and think you can ignore building credit, think again! It's like trying to run a car on empty - it may work for a bit, but eventually you're gonna run out of gas and be stranded on the side of the road. Don't be the business equivalent of a broke down clunker, start building credit today!
Think of it this way, if you're a business owner and you don't have any credit, you're basically a ghost. And ghosts don't get loans, ghost don't get credit lines and ghosts don't get the best interest rates. Don't be a ghost business, start building credit now and watch your business thrive.
WHY IS BUSINESS CREDIT IMPORTANT TO ME?
Well, the whole purpose of this report is to explain the answer to that question. I have 4 important points to share with you that will explain why business credit should be important to you. So let’s get on with it and talk about the 4 Big Reasons You Can’t Afford To Ignore Business Credit.
REASON #1: Business Credit Is One Of The Quickest And Easiest Ways To Get Money To Run Your Business.
When it comes to running a business, one of the most important things to consider is the financial aspect. And, one of the quickest and easiest ways to secure funds for your business operations is through business credit. Business credit can provide a reliable source of funding for a wide range of business scenarios with minimal hassle. Additionally, it can also be a valuable tool in addressing common cash flow challenges and other financial issues that may arise during the course of running a business. For instance, let's say you're looking to expand your inventory or invest in new equipment, business credit can provide the necessary funds to make that happen.
Here’s an example:
Joe's Plumbing Shop was a thriving enterprise in Idaho, boasting a team of skilled employees and a fleet of company vehicles outfitted with the latest tools and equipment. However, a series of personal crises threatened to derail the business's success. A severe illness struck Joe's mother and his wife left him, leaving him struggling financially and damaging his personal credit.
In the past, Joe had occasionally relied on his personal credit to finance the business, but now that choice would come back to haunt him. A major opportunity for growth and expansion presented itself in the form of a large job bid, requiring a significant investment in new equipment and additional staff. The potential payoff was huge, but to secure the contract, Joe would need to secure a loan of $50,000.
Sadly, Joe's personal credit was now in ruins, making it impossible for him to secure the loan he needed to take on the job. Without access to business credit, Joe was forced to pass up the opportunity, losing out on a major expansion and growth for his company. It was a hard-hitting blow, but a harsh reminder of the importance of separating personal and business finances.
The story of Joe's Plumbing Shop illustrates the crucial importance of maintaining a clear distinction between personal and business credit. Joe's personal financial struggles had a detrimental effect on his credit, but this does not necessarily mean that his business credit would have been similarly impacted. However, Joe's reliance on personal credit for business needs ultimately proved to be a costly mistake.
This example highlights the significance of having established business credit. Without it, a business can be left vulnerable to financial difficulties and missed opportunities, as was the case with Joe's company. By failing to establish business credit, Joe missed out on a major opportunity for growth and expansion.
The lesson to be learned from Joe's experience is that business credit can serve as a vital safety net in unexpected or challenging situations. However, for that safety net to be effective, it is essential to establish and build business credit well in advance, before it is needed. By taking the time to establish business credit, a business can protect itself from financial setbacks and position itself for future success.
REASON #2: Business Credit Is Cheaper Than Personal Credit.
The second key benefit of establishing and utilizing business credit is that it can be more cost-effective than relying on personal credit. By using business credit, you have access to better interest rates and loan terms, even with less-than-stellar personal credit.
When financing a business venture, many individuals turn to personal credit options such as credit cards, home equity loans, or unsecured personal loans. However, these options may come with higher interest rates and less favorable terms. By contrast, business credit is specifically designed to finance business operations and can offer more favorable terms, even for those with less-than-desirable personal credit.
Additionally, establishing and building business credit is often easier and quicker than improving personal credit. This means that even with less-than-perfect personal credit, you can still qualify for better interest rates and loan terms through business credit.
Even for those with good personal credit, business credit can still prove to be a more cost-effective option. With business credit, you may be able to secure loans at even lower interest rates than those available through personal credit options.
In short, regardless of your personal credit situation, utilizing business credit can provide access to more favorable loan terms, and can ultimately save you money in the long run. It is a smart financial move for any business owner to establish and maintain strong business credit.
Here’s what your loan options might look like:
Loan Type | Loan Amount | Interest Rate | Cost of Loan (In Terms of Interest Paid) |
|---|---|---|---|
Credit Card | $10,000.00 | 11% | $5080.09 |
Home Equity Loan | $10,000.00 | 7% | $3088.37 |
Unsecured Personal Loan | $10,000.00 | 9% | $4064.20 |
Loan in your Business Name | $10,000.00 | 7% | $3088.37 |
1 The cost of loan calculation here assumes that each loan will be paid back by the business cover a period of 8 years.
So with this simple example here the home equity loan is right there with the business credit loan. This may or may not be true in any given situation, but consider this...
With one of the loans, you’re risking your house.
So there is another cost factor here that we haven’t talked about, and it’s one that no bank will tell you about. What is that cost?
Think about the above numbers for a minute. The best personal credit interest rate in our example is the home equity loan at 7%. But guess what?
It’s secured by your HOME!
If something goes wrong and you can’t pay the loan, not only will your personal credit be trashed but you will probably lose your home too. That’s a pretty big cost to consider.
If you have great credit, you’ve probably spent years building your personal credit profile. Now might be a good time to mention that it’s a lot easier to build business credit than it is to build personal credit. Knowing this, why would you want to use personal credit to finance your business? In terms of your own personal risks to your finances and your home, the costs are much greater with personal credit than with business credit.
REASON #3: Having Business Credit Will Help To Draw A Clear Distinction Between Your Personal Finances And Those Of Your Business.
It is highly recommended to maintain separate financial accounts for your business and personal finances. Not only does this safeguard your personal credit and assets, but it also establishes the legitimacy and credibility of your business in the eyes of financial institutions, investors, and government agencies. Failure to keep these finances separate can expose you to liabilities that your business entity is intended to protect you from. Additionally, mixing your personal and business credit can also potentially cause future problems for your family. It is important to have a clear distinction between the financial health of your business and personal life for the protection and success of both. It is best to establish separate credit lines for your business, rather than relying on personal credit cards to finance business operations. This will avoid the potential risk of maxing out personal credit and negatively impacting your credit score.
Furthermore, separating your personal and business finances allows for better financial tracking and management. By having separate accounts, you will be able to easily identify and track business income and expenses, which is crucial for tax and accounting purposes. It also allows you to make more informed business decisions by providing you with a clear picture of the financial health of your business.
Moreover, having separate finances for your business can also improve your chances of obtaining funding from banks and investors. Financial institutions and investors are more likely to invest in a business that has a clear and organized financial structure. By keeping your finances separate, you are demonstrating to potential investors and lenders that you are a responsible and organized business owner.
In conclusion, separating your personal and business finances is essential for the protection and success of both your personal and business lives. It safeguards your personal credit and assets, establishes the legitimacy and credibility of your business, and allows for better financial tracking and management. By taking the time to establish separate financial accounts, you are making a wise investment in the long-term success of your business.
There are two things that could happen in this scenario that would be completely disastrous:
You need your personal credit for an emergency, such as for a medical procedure or to help a family member. You can’t do it because you’ve used up your personal credit for your business.
Your business needs more credit to continue operating, and your personal credit can’t provide it. The business fails which kills your income, and ever after finding a job to provide for your family you are unable to pay the massive credit card bills that your business racked up. Creditors start coming after you for your business debts that you’ve put on your personal credit. Your credit is ruined. You file for bankruptcy.
Obviously these are situations you should aim to avoid. The best way to avoid situations like what I’m describing here is to keep your personal credit and finances completely separate from those of your business, to the greatest extent possible.
Another scenario similar to the above that could hurt you is if you start having problems with your PERSONAL finances that affect your business. If you’re accustomed to getting loans on your personal credit to finance operations and expansions for your business, the day may come when you run into personal credit, problems and as a result you will be unable to fund important operations or expansions for your business.
In this or the scenario described above, the problem remains the same:
Mixing your personal and business credit can result in one affecting the other in a negative way, and ultimately lead to your financial downfall!
The more connected your personal finances and your business finances are, the more likely it is that one will eventually end up harming the other.
Using your personal credit for business can limit your families options in times of need. It can limit your business’s options in times of need. In other words, it’s bad for both your family and your business, so don’t do it!
REASON #4: The Cost of Doing Business Will Be Less In The Long Run.
I’ve already covered the fact that business credit can be cheaper than personal credit. This makes the cost of operating your business less. But it goes further than that. Establishing business credit now will make sure you have the best interest rates on the best loans when you need them. It will also save you money on insurance, lease agreements, and more.
Building and maintaining a solid business credit profile will reduce the cost of operating your business in the long run, and the results can be dramatic.
Look at it this way...
With business credit a person might save:
$50 per month in interest on a loan
$15 per month on insurance
$20 per month on lease payments What does it all add up to?
Look at the savings over the next 5 years:
$85 per month in savings x 12 months x 5 years = $5,100
That’s over $5,000 in savings, all for taking the time to establish business credit now.
The risks and costs of relying exclusively on your personal credit for your business are huge. Take those away by establishing and using business credit, and the potential savings are dramatic.
Now consider the fact that business credit could literally save your bacon by providing the funds necessary to keep your business running when you’re short on cash. How much is that worth? More than you can imagine!
Ask yourself the following two questions:
Is it worth the trouble of establishing business credit to obtain $150,000 to run your business?
Is it worth the trouble of establishing business credit to possibly protect and save your financial future and that of your family? Obviously, this is a no-brainer.
The answer to both questions is “YES!” Business credit is worth it.
CONCLUSION
In this short report I’ve covered 4 important reasons that YOU should establish and build business credit today. As a quick review, here they are on one page:
Business credit is one of the quickest and easiest ways to get money to run your business! For expansions, for marketing, for startups, for daily operations... businesses need money. Establishing and building business credit gives you one more option for obtaining life-giving funds for your business.
Business credit can be cheaper than personal credit, especially for those with a bad personal credit rating.
Having business credit will help to draw a clear distinction between your personal finances and those of your business. Not separating your business and personal finances can lead to disastrous results.
The cost of doing business will be less in the long run.
Potentially a lot less.
Here’s the real question: What could ignoring business credit cost you?
If you add up everything from the four points I’ve given you in this report, you should see quickly that ignoring business credit could be the biggest mistake you ever make—not only for your business—but for your personal finances, your family, and your life.
You might think you can’t afford the time, the energy, or the money that it will take to establish and build business credit. I would like to suggest that the opposite is true. If you add up everything from this report, you should quickly see that it will in fact cost you much more to ignore business credit than it will to obtain it.
