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Expert Expanding Business Buying Power with Business Credit

Updated: May 29, 2022

Curious on how you can expand your business' buying power? Read here to learn more about business credit options that expert rave about.

America is overwhelmingly made up of small businesses. Small business makes up 99.9% of all U.S. businesses.

But one problem has always plagued small businesses: funding. Without the ability to buy equipment or supplies, small businesses struggle to operate, expand, and may even close.

So, how do you get credit as a small business? And what type of credit is available?

If you’re looking to fund a business but aren’t sure where to start, we’ve got you covered! Here’s how you can expand your business buying power with credit..

What Is Business Credit?

If you’re familiar with the concept of personal credit, business credit is similar. It’s the “financial reputation” and trustworthiness of your company.

There are several different business credit reporting agencies: Experian Business, Creditsafe, Equifax Business, and Dun & Bradstreet are the most popular ones.

The latter, Dun & Bradstreet (D&B) has been in business for over 200 years. Their PAYDEX score is on a scale of 0-100, with higher numbers indicative of lower risk. Other bureaus like Equifax Business will have their own credit score system.

A potential lender may look at one or more of these credit scores and credit reports when deciding to lend to a business.

Why Is It Important?

Business credit allows business owners to establish a business credit profile. This profile is used by credit grantors to determine if they should extend credit to a business.

That means less pressure on your personal finances. It also means you no longer have to use your own cash or credit cards for business purchases.

The better your business credit rating, the easier it is for your company to borrow money when needed. You will have a better chance of getting business credit cards. Landlords may also look at your credit rating to determine if they should lease you space.

Better business credit will lead to better options and rates from lenders. You may pay lower insurance premiums too.

It can also be used to attract potential investors. Finally, if you ever decide to sell your business, a strong business credit profile is attractive to potential buyers.

How Can You Build Business Credit?

First, you need to structure your business as a separate legal entity. This could mean forming an LLC, corporation, or limited partnership.

Then you need to apply for an EIN, or employer identification number. Fortunately, this is an easy process and can be done online via the IRS website.

You can also make your company appear more credible by setting up a business bank account. A dedicated business phone number is also useful.

Types of Business Credit

Much like your personal credit, there are several different types of business credit. Depending on the industry you’re in and your specific needs, you may utilize one or more of these for funding your business.

Installment Accounts

Installment accounts are business short term loans where you borrow a fixed amount, then repay it over a fixed period of time. The interest rate for these types of loans are fixed and don’t change from one month to the next.

Your local bank or credit union is usually the first place to go if you decide to get a business loan. You could also try a guaranteed loan from the SBA (Small Business Administration). They effectively act as a co-signer, helping small businesses secure loans, limit fees, and cap interest rates.

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