The major advantage is that when you open a business credit account, make purchases with it, and then pay them on time, you’re establishing business credit in your company name. And, as I said, business credit records are becoming more important for all kinds of financial decisions.
I recommend that if your business is using anything established in your personal name, something like a telephone account or a bank account, you should put it in your business name. It makes your company more professional, and if you’re purchasing and paying on time, it helps you gain a positive credit history that will help build up your business credit and improve it. And that will help you get better rates and terms in the future.
How does a startup company get a first credit card?
For a brand-new business, a credit provider will probably start by examining your personal credit history. Generally they’ll also default you to a higher interest rate and a lower credit threshold until your company proves itself. The important thing to remember is that after six months of good history with them, you can go back and renegotiate your credit terms.
There seems to be a strong independent streak among entrepreneurs, and many of them seem determined not to put their companies into debt. Is this sentiment misguided?
Not necessarily, but it can be limiting. Most small businesses will find it very difficult to expand to the extent they want to if they don't have some kind of revolving cash available to them, whether that's a small-business loan or a small-business credit card. For instance, a company that lands a large new customer may have trouble purchasing the goods they need to fill that customer's orders unless they already have access to revolving credit. The alternative is using up all your personal capital, which no one wants to do.
So, even if small businesses don't have an immediate need to pay on credit, it is a good idea for them to apply for and use a credit card. Using it and paying it on time builds up their good credit history, just like with a personal card. Also, most small businesses have cash-flow challenges, and a credit card can help them bridge this gap if and when the need arises.
Check your business credit rating at www.dnb.com.
Category: Contractors > Business Services
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