Business Finance

Establishing Business Credit

Written by Richard San Juan for Gaebler Ventures

As a small business owner or an entrepreneur, obtaining capital is vital to keep your business or organization going. However, to be able to efficiently gain capital, it is important that business credit is established.

When a small business owner or entrepreneur starts a company, they often first look towards the selling of a particular product or service.

Establishing Business Credit

It is understandable, because when first starting out with his or her very own company, there is of course the anxiety and excitement to succeed quickly. Small business owners and entrepreneurs are often focused on the development of new products or services, marketing activities, determining a business location, and other activities that goes with creating a solid foundation for a new company.

Unfortunately, small business owners or entrepreneurs often neglect an aspect of business that greatly increases their chances for financial survival during the early stages of development.

That activity that does not often garner enough attention is establishing business credit.

Before establishing business credit, in many instances, small business owners or entrepreneurs must initially be willing to personally guarantee their business's credit until credit becomes officially established in the name of the business.

However, it is assumed that in order for an entrepreneur to extend personal credit to his or her business, the business owner should have good personal credit. Therefore, fixing up and getting one's personal credit in good standing is definitely a prerequisite before establishing a company or organization.

Aside from being able to gain more initial capital more favorably, why is it so important to establish business credit for an entrepreneur? By being able to establish business credit even when the economy is so poor, the probability of your business or organization surviving is greatly increased.

Moreover, one of the biggest advantages of creating a good business credit profile is saving money. By receiving a favorable credit score, entrepreneurs can lessen the interest they pay on various loans and leases. In addition, as a result of freeing up more capital, small business owners and entrepreneurs can also take advantage of prepayment discounts with vendors, build inventory, and add employees to the company.

Establishing business credit also enhances your company's image and how it projects itself to the business world. This is especially important since other business owners can do a background check your company's credit report to see if they want to do business with you. Thus, having good business credit could mean the difference between gaining new business partnerships. A company with its own credit history has increased credibility and is perceived to have a higher level of professionalism with the government and other businesses.

Finally, establishing business credit assists the entrepreneur or small business owner if the company goes out of business. If the company does not have corporate credit, the entrepreneur would still be legally and personally bounded to any remaining business expenses despite going bankrupt.

Richard San Juan is currently pursuing an MBA degree with an emphasis in Finance from DePaul University in Chicago. He is particularly interested in writing about business news and strategies.

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