"Credit is a system whereby a person who can't pay gets another person who can't pay to guarantee that he can pay." - Charles Dudley Warner
Sarah was a successful business owner with a thriving company, but she never thought about establishing a business credit profile and score. She always used her personal credit for her business and never had any issues securing loans. However, when the economy took a downturn, her business was hit hard and she found herself in need of a large loan to keep her company afloat. To her surprise, she was denied due to her lack of a business credit history and score. She soon realized that her personal credit was now at risk and her business was in jeopardy because she had not taken the time to build a strong business credit profile and score.
John, on the other hand, always understood the importance of establishing a strong business credit profile and score. He made sure to obtain business credit cards, take out loans in the name of his business, and pay his bills on time. When the economy took a downturn, he was able to secure the loan he needed to keep his business afloat, and his personal credit was protected. John's foresight and proactive approach to building a strong business credit profile and score saved his company and allowed him to weather the storm.
The story of Sarah and John highlights the alarming risks associated with not building a strong business credit profile and score. By neglecting their business credit, Sarah put her business and personal finances at risk, while John's proactive approach allowed him to secure financing and protect his personal credit during tough times.
Failing to establish a solid business credit profile and score can be a recipe for disaster for small business owners.
Without a well-established credit history, it can be nearly impossible to secure the amount of financing required when the need arises, leaving the business in a precarious position. Even if a loan is approved, the terms and interest rates offered may be unfavorable, putting an additional burden on the business and making it difficult to stay afloat.
According to the Small Business Administration and NAV, is a Business Credit Profile & Score Real?
Yes, the topic of establishing a business credit profile and score definitely exists and is an important topic for small business owners.
Business credit is a reflection of a company's financial responsibility and creditworthiness. A strong business credit profile and score can help a business secure financing, obtain favorable loan terms and interest rates, establish credibility with suppliers and customers, and reduce the risk of personal liability for business debts. In contrast, a weak or non-existent business credit profile and score can make it difficult for a business to obtain financing, increase the cost of borrowing, hurt the business's credibility, and put personal assets at risk.
Establishing a business credit profile and score involves building a credit history, just as individuals build a personal credit history. This can be done by obtaining business credit cards, taking out loans in the business's name, paying bills on time, and regularly checking the business's credit report for accuracy.
There are several organizations that specialize in business credit reporting and scoring, including Dun & Bradstreet, Experian Commercial, and Nav. These organizations use various sources of financial and credit information to calculate a business's credit score, which can be used by lenders and suppliers to evaluate the creditworthiness of a business.
In conclusion, establishing a business credit profile and score is a critical aspect of running a successful and financially stable small business. By building a strong credit history, small business owners can increase their chances of obtaining financing, lower the cost of borrowing, establish credibility with suppliers and customers, and reduce the risk of personal liability.
Brian Fleming
Spring Hill Financial,
Mount Laurel NJ
The SBA and Nav both stress the importance of establishing a strong business credit profile and score for small business owners.
Here are some of the key reasons why:
Difficulty obtaining financing: Without a solid business credit profile and score, it may be difficult for a small business to secure the financing it needs to grow and thrive. Lenders are less likely to approve loans for businesses without a strong credit history, putting the business at a disadvantage.
Unfavorable loan terms and interest rates: If a loan is approved, the terms and interest rates offered may be unfavorable, putting an additional burden on the business and making it difficult to stay afloat. A strong business credit profile and score can increase the chances of obtaining favorable loan terms and interest rates, making it easier to manage debt and maintain financial stability.
Lack of credibility: A lack of a well-established business credit profile and score can also hurt a business's credibility with suppliers and customers. This can make it difficult to secure the supplies and materials needed to operate and grow the business, and can also make it less appealing to potential customers.
Personal liability: In many cases, small business owners are personally responsible for business debts, which can put their personal assets at risk. Establishing a solid business credit profile and score can help to protect personal assets and reduce the risk of personal liability.
The Small Business Administration (SBA) suggests that having a strong business credit profile and score before applying for loans is important because it helps demonstrate financial stability and credibility to lenders. A good credit score can also lead to more favorable loan terms and interest rates. The SBA offers resources on building and maintaining business credit, such as its article "Building Business Credit."
Dun & Bradstreet, a business credit reporting agency, emphasizes the importance of establishing a business credit profile and score because it helps build a company's financial reputation. This can make it easier to secure financing and can also be a factor in the terms and interest rates offered by lenders. Dun & Bradstreet offers resources on building and managing business credit, such as its "Business Credit Basics" guide.
Nav, a business financing platform, highlights that having a well-established business credit profile and score is essential for small business owners seeking loans. A strong credit profile can increase the chances of loan approval and make it easier to obtain favorable loan terms. Nav provides resources on how to build business credit, including its article "How to Build Your Business Credit Score."
Experian Commercial, a credit reporting agency, stresses the importance of establishing a strong business credit profile and score before applying for loans. This can help to demonstrate financial stability and credibility to lenders, which can increase the chances of loan approval and lead to better loan terms and interest rates. Experian Commercial offers resources on building and maintaining business credit, such as its "Building Business Credit" guide.
These organizations provide valuable resources and information on establishing and maintaining a strong business credit profile and score. By taking advantage of these resources, small business owners can increase their chances of obtaining favorable loan terms and interest rates.
Sources
- Small Business Administration (SBA): https://www.sba.gov/
- Dun & Bradstreet: https://www.dnb.com/
- Nav: https://www.nav.com/
- Experian Commercial: https://www.experian.com/business-services/
The State of Small Business Credit: A Closer Look
According to the National Association of Small Businesses (NASB), over 50% of small businesses lack access to credit and face challenges when trying to secure funding through traditional banking channels. This lack of access to credit can have a profound impact on the growth and success of small businesses. In this section, we will explore the state of small business credit in more detail and discuss the reasons behind the challenges small businesses face when trying to secure funding.
Challenges Securing Funding through Traditional Banking Channels
Small businesses also face challenges when trying to secure funding through traditional banking channels. According to the Small Business Administration (SBA), only 27% of small business loan applications are approved by traditional banks. This is due to the strict lending criteria set by these institutions, which often require small businesses to have a strong credit history, collateral, and a proven track record of success.
Impact on Small Business Growth and Success
The lack of access to credit and challenges faced when trying to secure funding through traditional banking channels can have a significant impact on the growth and success of small businesses. Without access to credit, small businesses are limited in their ability to invest in new equipment and technology, expand operations, and hire new employees. This can make it difficult for small businesses to compete with larger, established businesses and can limit their potential for growth and success.
Conclusion
In conclusion, establishing a strong business credit profile and score is crucial for the success and stability of a small business. Without a well-established credit history, a business may face difficulty obtaining financing, unfavorable loan terms and interest rates, lack of credibility, and personal liability. Don't let your business be caught in this trap!
Sources:
- National Association of Small Businesses. (n.d.). Small Business Credit Statistics. Retrieved from https://www.nav.com/resource/small-business-credit-statistics/
- Small Business Administration. (n.d.). SBA Loan Statistics. Retrieved from https://www.sba.gov/funding-programs/loans/sba-loan-statistics
