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3 Main Points Before You Establish Credit for Your Business
07/23/2019
There are various factors to consider when deciding to use credit for your business. The most crucial and overlooked component is can you afford to use it? Every business’s credit needs are different. Many small business owners have the misconception that if business credit is granted to them, they can afford to use it. Credit applications don’t ask what your business expenses are, whether or not your business equipment is outdated and needs to be replaced soon, or if you need to hire new employees, or how much is spent on advertising each month. So before you start applying for business credit or accept the first credit offer that comes in the mail, understand that there are three main points to consider before filling out an application. Let’s review these three key points below: Business Spending Patterns The first question to be addressed is how you intend to use your company’s credit. As a business do you plan to pay off the balance owing every month, or do you anticipate carrying a balance month to month? Do you plan to use your business credit for day to day purchases, or just for unforeseen expenses? If you plan to pay your invoices and statements in full every month, then the interest rate may not be the primary factor. You may want to look for credit with a longer grace period and no annual fee if it’s a business credit card. If you’re going to carry a balance, you want the lowest rate possible. If you plan to use your credit on a day to day basis, look for a low rate along with sizable credit limits. Although there are various types of credit you can use it’s essential that your payment experiences get reported to your company’s credit files. Interest Rate and Terms When establishing credit in your company’s name pay close attention to the APR, or annual percentage rate and terms. It’s common for card issuers to offer a low introductory rate just to get you to apply for a company card. Then, the rate will adjust higher after the introductory period expires. Also, for net accounts the repayment terms vary by supplier, and Net 30 or Net 60 are not the only options available. Managing Business Credit Once you decide on the types of credit your business needs and how you plan to use it, follow these guidelines for managing a positive business credit history:
By establishing business credit reports and scores; banks, lenders and suppliers will have the ability to assess the creditworthiness of your business. This will allow you to maximize your company’s funding potential and credit capacity. Whether you own a startup or existing business take these three main points into careful consideration prior to beginning the business credit building process. Back To News |
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