Building Credit: The Key to Access Capital

Establishing credit and having access to capital could be called financial cousins, don’t you think?

More than likely you’ve already built up your personal credit score, but did you know building a business credit history is just as important?

In fact, business owners may unknowingly apply for a small business loan without understanding the importance of having a favorable business credit score. They are also surprised when lenders reject their application for that very reason.

In addition to making it easier to qualify for a loan, your business credit history enables lenders to give you better rates since they consider you a lower credit risk. Moreover, low-risk borrowers in the 76-100 range can establish long-term relationships with suppliers and investors because they are eager to do business with them. Once you establish a solid business credit score, you can purchase new equipment, pay off credit cards or make improvements to an office building.

Let’s find out how Pablo found out how to build business credit for future expansion.

Pablo Was Turned Down for a Small Business Loan

The Latino business owner makes Bohemian and other types of wicker furniture and baskets. He’s a self-taught craftsman who has several employees and leases office and production space. Buyers use his products to decorate apartments, homes, condos, and office suites.

Up until now, Pablo has had steady cash flow and hasn’t needed to borrow additional capital. To keep his business growing, he decided to enlarge his inventory so he can fill orders quickly. Therefore, he needs cash to purchase supplies and cover increased labor costs. He applies for a business loan but the lender turns down his application because of his poor business score.

Because he has an excellent personal credit history, Pablo had no idea that not having a business credit score would affect his chances to get a loan. The lender is willing to help Pablo build his business credit history and makes suggestions he can implement right away.

The first step Pablo takes is to apply for a business credit card and a savings account in his business name. By making timely payments, Pablo can establish credit quickly. After he completes several tasks, he reapplies in four months and the lender offers him a loan. Pablo intends to develop a long-standing relationship with one or more lenders so his business doesn’t experience slumps in production or sales.

A Higher Business Credit Score Can Benefit You Too

Like Pablo, unless you spend time building up your business’s credit history, you may not secure a small business loan.

Pablo thought his personal credit score was enough to acquire more capital. Even though discouraged, he found out he could change his business’s trajectory. You probably have the same questions he had. How can you join the ranks of other business owners that built up or improved their credit histories quickly? How can you tap into tips and techniques that other entrepreneurs already use? How can you find out how to keep your business out of the red by always having access to capital? Fear not, knowing how to build business credit can be as easy as 3 easy steps that aren’t hard to put into practice.

Your credit score should go up so you’re positioned to qualify for loans and business lines of credit. Then, you can add to your fleet of vehicles, make your storefront more welcoming or your sales office bigger. A higher business credit score opens the door that otherwise stays closed.

This is a guest contribution by Betsy.