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Three Business Credit Myths Debunked

A lot of people don’t understand the consumer credit system. And many more don’t understand the business credit system. Today I’ll cover some common business credit myths and explain what can be learned from them.bility to access a good $50,000 for your business. Your success in business is based on your business credit profile and score.

Myth #1: Business Credit is Just Like Personal Credit

This sounds like it ought to be true, but it isn’t. Sure, the credit systems are similar. But there are some major differences that can seriously affect your business. For starters, the consumer credit system has, both in court and in congressional testimony, been shown to be fairly anti-consumer. The system works against consumers in often. It is prone to errors and tends to resist the correction of any errors by consumers or their advocates. In one example, even after a credit bureau lost in court, they continued to refuse for months to remove incorrect information from the person’s credit reports. The business credit system is different. It is not anti-business (or anti-consumer) and is less prone to errors. And when there are legitimate errors, it tends to be easier to correct them.

Myth #2: It Doesn’t Hurt to Use Personal Credit in Place of Business Credit

This is a problematic way of thinking that can lead to big problems down the road. Using personal credit for business purposes puts your personal credit at risk for the sake of your business. By doing so, you limit the resources available to you personally and to your business. The end result could be disastrous. Imagine when your business credit needs exceed your personal credit capacity. And then you need to use your personal credit and can’t because it’s tied up by your business. No matter how you spin it, in the end using your personal credit for business is a bad idea.

Myth #3: Business Credit and Personal Credit Are Not Related

Using your personal credit for business use is a bad idea. But we can’t 100% separate business credit and personal credit. Often, especially when starting out with business credit, a company owner must provide a personal guarantee for the business credit loan or line of credit. When providing a personal guarantee, the company extending credit will not only check your business credit. They will check your personal credit history. While the business account won’t show up on your personal credit report, the personal guarantee could eventually affect your personal credit if the business fails to meet its obligations. Aim to avoid that scenario (and you can) with careful planning and smart use of business credit.

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Denied Business Credit?

Per recent reports, as many as one third of applications for business loans get a denial. If you find yourself as part of that group, there are some ways to help the situation.

First, try to determine where the problem is. Possible areas of concern may include:

Your business profits. Does your business have a healthy profit margin? Improving your profits by reducing and trimming operational excess and unnecessary business spending can help improve profits. This will boost your chances of approval.

  • Your business assets and liabilities. If your balance sheet is out of whack, most lenders will run the other way. If your business is already heavy on debt, then this will be an area of concern you should address.
  • Your bank ratings. If your business bank account balances are often low, this can rule you out for certain types of business credit. Try to maintain $10,000 or more in your business bank accounts to avoid trouble.
  • Your payment histories and business credit profile. How you pay existing obligations will play a role in your approval or denial for credit. If you’ve gotten a business credit denial recently, check your business credit score and other payment performance data.
  • Most payment information is only reported for 2 to 3 years (depending on the credit bureau), so if you’ve made a mistake or hit a bump or two in the road, don’t let it worry you. Keep the positive payment history going, and make sure what is being reported is accurate.
  • Your bank ratings. If your business bank account balances are often low, this can rule you out for certain types of business credit. Try to maintain $10,000 or more in your business bank accounts to avoid trouble.

The bottom line, if you’ve had a credit denial, then there is something about your business making it seem to be a bad risk. Your job is to analyze and understand your business credit report and business finances. Find where the problem is and take the necessary steps to correct your course. Sometimes a lack of history or data on your business is a key factor in a credit denial. You can fix this with careful steps to shape your business’s financial picture and credit profile.

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Business Credit Benefits

Imagine having the ability to access a good $50,000 for your business. Your success in business is based on your business credit profile and score.

With a good business credit profile, you will have near unlimited borrowing power. Without a good business credit profile, it will be a difficult path to success with no access to working capital and funding.

This is why almost all Fortune 500 companies use their business credit to secure funding. It’s not that they need the money to operate. Successful companies use funding as leverage to grow their business.

Business Credit is the best kept secret in business. Over 90% of all business owners know nothing about it or business credit scores.

But when you discover what business credit can do for you and your business, you will be floored at how easy it is to get money and grow your business. With a strong business credit profile, lenders will lend you money based on your business credit, not personal credit. This is excellent.

If you have personal credit issues as you can still qualify for funding. Even with exceptional personal credit, business credit gives you DOUBLE the borrowing power. You can get approval for much more money with your business credit than if you used your personal credit to qualify.

Another great benefit of business credit is you may not need to provide a personal guarantee for some of the funding you get. This means you can get approval with no personal liability. So, if you ever default, the creditor can’t pursue personal assets like your home or personal bank accounts.

Business credit adds more value to your business and gives your business credibility. Stakeholders, partners, lenders, even potential buyers of your business will see more value in your business if you have a strong business credit profile.

Most important: by having a good business credit profile built you have security. It is much easier to run your business when working capital is easy to come by.