Business credit, also known as trade credit, is any loan or line of credit to a company for a business purpose whereby those funds are used for a business purpose to conduct operations. Credit can be used in many forms and has multiple applications as part of the day-to-day functioning of any business, ranging from shipping and purchasing to payment terms and inventory control. The importance of maintaining good business credit cannot be overstated; therefore, it is critical that business owners understand how to establish and maintain good credit with the various vendors and suppliers they do business with on an ongoing basis.

What Is Business Credit?

Business credit is a short-term loan given to a business for business purposes. This type of credit allows your company to fund assets, pay vendors, buy inventory or meet any other cash needs that you have. Business credit is not related directly to your personal credit history in any way, although a good business credit score will reflect positively on your reputation as an entrepreneur. In fact, many banks are more likely to extend additional lines of credit if they know you’ve had at least some experience in business before starting up your current company. 

Why Do I Need a Better Rating?

If you’re a small business owner, it’s in your best interest to have some form of business credit. Without business credit, you won’t be able to expand your operations or start new ventures, and if things get too tight—for example, if a big client pulls out at a critical time—you may not be able to survive. On top of that, keeping good financial records will give you much better chances of having access to more favorable rates when obtaining loans or credit cards for personal use as well. Since so many companies these days are online-based, getting started with business credit is incredibly easy. And once it’s there, staying on top of it doesn’t require much work at all.

Types of Ratings Systems

Small business owners who use credit as a way to purchase goods or cover working capital may choose from many different types of rating systems. A company’s rating is a measure of how well they pay their bills on time. The more dependable, reliable, and successful companies tend to have better credit scores; bad scores go to unreliable, risky companies that are often unable or unwilling to pay their bills in a timely manner. Rating agencies collect financial information about individual businesses, including how quickly they pay off loans and when they defaulted on payments in order to create an overall score based on each rating agency’s complex formula. These scores are used by lenders as a guide for deciding whether or not they should lend money. There are three main types of rating systems: commercial credit reporting services (CRCs), Dun & Bradstreet (D&B), and Experian/Fair Isaac Corporation (FICO). All three share similar information, but they calculate it differently. They also offer different products and services to help small businesses manage their finances. CRCs provide data such as payment history, tax records, accounts receivable records, litigation records, bankruptcies filed against a business owner or director, liens filed against them by creditors, judgments entered against them by courts for unpaid debts or damages due to injuries caused by defective products sold through their company. D&B provides similar data but only for larger corporations with annual revenues greater than $250 million.

Monitoring My Own Rating

The first thing to do is monitor your own business credit rating. This is best done by asking a small business loan officer in your area. You’ll want to know where you stand with regard to credit history, how you can improve it if necessary, and other factors that go into getting a loan for a business. If there are deficiencies in your rating, you may be able to correct them through additional reporting or simply by starting small with something like an application for standard credit cards. As long as those cards are managed well over time, they can help build up your overall score nicely.

Tips For Improving My Rating

Most small businesses fail within their first three years due to a lack of profitability. This is usually a result of poor management, but business owners often ignore the critical aspects of running a business. One such aspect is relationship building. Knowing how to build relationships with vendors, customers, competitors, and partners will help your business become more profitable and successful than it would otherwise be. Here are some things you can do that will make all of your relationships much stronger.

Small Changes Can Mean Big Savings

The more efficiently you can use your available resources, whether they’re people, money, or materials, the more efficient you’ll be. Companies that make small cuts in waste—including reducing downtime and cleaning up after themselves—can see big gains in their financials. A company that sees a 10% savings year over year saves $100K just by doing everything it does 10% better than last year. That’s a major accomplishment for any business owner. The next time you think about changing suppliers, consider how much time your employees could save if they have to change less frequently. Or examine every step of an employee process from sign-in at morning meetings until time-card punching at night. How can each process be streamlined?

Keeping Track Of All Transactions

Once you have a credit line established, it’s important to keep track of all your business transactions. Many businesses use accounting software programs for managing cash flow, tracking expenses, and generating reports on profit margins. Others rely on QuickBooks or another program for these services—if you’re starting from scratch, it may be helpful to hire a bookkeeper or accountant who can handle these tasks. If you don’t already have one, consider reaching out to someone familiar with your industry as a reference. A quick call could help avoid major mistakes—and maintain healthy credit ratings in good standing with vendors.

Setting Goals To Keep Me Focused And On Track

It is always good to set goals to keep you focused and on track. A business credit goal can be as simple as establishing business credit or something more complex such as increasing the credit line by 25%. Whatever your goal, it is important to know what you are working towards in order to make sure you maintain your business credit. You will also want to make sure that when it comes time for review of your business, your commercial lender understands what type of loan or financing options you qualify for based on your current bank statements and last three years tax returns.

Contact United Funding Group for Your Credit Needs

If you’re looking for a new credit line, but can’t seem to find one that makes sense for your business, there are other options. If you’re not sure about how much you can ask for, contact United Funding Group. We offer competitive loan options for virtually any type of loan that your business might need. Just give us a call at (954) 287-4539 or fill out our form on our website. We’ll respond with multiple loans options tailored specifically to your needs and send over everything so you can make an informed decision within 24 hours! When it comes to establishing and maintaining business credit, we have all of your options covered!

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