How To Establish Business Credit
Establishing business credit is a good way to pay for inventory, payroll, advertising and other business needs. Rather than use your personal credit for such items, it is a lot better to keep an even business flow of cash by having enough inventory available, money for payroll and other needs.
Most often lenders will help you establish a line of credit where you only pay interest on the amount that you have in the way of outstanding loans. For example you might have a line of credit for $50,000, but you only use $35,000, so that is what you will pay interest on.
Some lenders simply let you have a note, where there is no specific schedule for paying back the loan, and in fact it is sometimes in the lender’s favor to simply have that capital remain outstanding, as it is working for the lender by the interest that is being paid.
You may start out at first with a meager amount of credit and as you are successful in managing that amount, lenders will extend more credit as your need it, for example for expansion or the addition of new product lines. If you work with a local bank or another lender who becomes familiar with your business and the flow of things, many times a system can be worked out so that timely advances can be made.
The two most evident areas of credit need are inventory and payroll. These are financial needs that are always there whether the timing of sales is occurring or not. Sales can tend to be cyclic in nature where they are up in one financial period and down in another, and having a good business credit situation will help to level things out.
As you show that you are able to handle and manage credit that is allocated to your business, it is noted by the credit agencies such as Experian, Transunion and Equifax. These are credit reporting agencies, and they will begin to keep track of the credit record of your business. As it is noted that you are paying your bills on time and that you are a good manager of your business credit situation, you will, in time, be offered more favorable terms.
Having good business credit is no huge secret, but there are standards that you have to follow in order keep things in good standing. Most lenders will be glad to help you set up a system that will be very beneficial in managing things.
Economic conditions are not always favorable for generating new sales in a business. Some businesses weather tough times better than others. Big ticket items such as automobiles and appliances don’t fare so well in difficult economic times compared to consumer goods such as groceries and personal items.
A good business credit situation can be a very big help for all business to help see them through difficult times by smoothing out cash flow to take care of the day to day needs until an economy rebounds.
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