Choosing a business credit card is a great option for small business owners who are looking to spread their large purchases out over time, cover costs during seasons of low cash flow and even earn rewards on guaranteed expenses. More than anything, this is a reminder to stay aware of how closely intertwined your personal and business credit accounts truly are.

From a behavioral standpoint, a line of business credit won’t absolve you of any less-than-perfect history with your personal card(s). Your spending habits are part of your credit record. If you’re having trouble staying within your limits, paying your balances or shaving down your debts, you’ll want to think long and hard before opening up a business account.

It’s the same user, whether your card has “business” in the name or not. If your credit score is in jeopardy, a business card could only compound matters by providing the temptation you’d be better off avoiding.

On the other hand, a business credit card can be an extremely valuable tool for business owners as they work to build credit for their growing business. A strong business credit score can bring a multitude of advantages to a business, including easier access to financing, lower insurance rates and even business investment opportunities. Because remember, investors can access your business credit score.

Answer this question:

“What would you do if you had a blank check to write for business expenses?” Buy a new car? Buy new office furniture and equipment? We’ve all been there. You want to spend money on a new marketing and advertising campaign. You want to spend some money to attend a conference or convention. You want to spend some money to hire a coach. You want to spend, but you just don’t have the cash on hand.

Even the most seasoned agents can go through “dry spells” where their cash flow becomes an issue.

Negative cash flow is when revenue drops and you don’t have enough money to pay the bills or you don’t have enough money to help grow your business.

Positive cash flow is when you have enough money to cover everything. The two sides of this coin couldn’t be any more opposite. One is bright and shiny and the other is dark and rusted. Positive cash flow will help the growth of your business, give you the ability to seize opportunities, give you peace of mind, and will lead to increased revenues. Think: “It takes money to make money”. Fact: Image is everything when it comes to real estate. Whether it is networking, social media, or pulling up to a listing appointment, it’s hard to “fake it till you make it” with NO CASH or CREDIT. Negative cash flow usually leads to a decrease in business, stress, missed opportunities, and increased debt. It’s impossible to “keep your eye on the ball” when your mind is buried in debt. Negative cash flow can cause an agent to fail!

The answer to the cash flow problem, isn’t always, “work harder!” or, “work smarter!” We all bust our butts every day, (well at least the ones reading this article do ;)). Agents have to prepare for the “rainy day” now. Agents have to be proactive and set themselves up so they have access to cash and credit when they need it most. The answer to the cash flow problem is not to use your personal credit to keep you afloat. In fact, one of the most important things you can do as an agent is to separate your personal credit from your business credit.

What is business credit?

Business credit is built using your Federal Tax ID Number/Employer Identification Number (EIN). Here are some reasons why business credit is so important:

• Improved credit capacity. According to the SBA, “businesses have 10 to 100 times greater credit capacity compared to personal credit.”
• Increase the value of your company. The thought of selling your company may be the furthest thing from your mind. Here is what you need to remember: the credit score of your business is fully transferable. If you sell the company, the new owner(s) will benefit from the work you put in.
• Protect your personal credit. Early on, you realize that your personal credit may be the only thing you have when applying for loans and credit cards. By establishing and improving your business credit, you can leave your personal credit out of the equation in the future.

Crazy Stats
“You’re not alone”

Here are a few surprising statistics related to business credit:

• 27% of businesses surveyed by the NSBA claimed that they were not able to receive the funding they needed. For those 1-in-4 businesses, the most frequent primary impact that a lack of funding had was preventing them from growing their business.
• 46% of all small businesses use personal credit cards. Many small businesses fail to separate business and personal expenses, according to research conducted by MasterCard®.
• According to the NSBA Small Business Access to Capital Study, 20% of small business loans are denied due to business credit.
• The Nav American Dream Gap Survey, 2015 revealed of small business owners surveyed, 45% did not know they have a business credit score, 72% did not know where to find information on their business credit score and 82% didn’t know how to interpret their score.
• Many lenders consider a business credit score of 75 as “acceptable” making it harder for those with a lower score to get a small business loan according to Small Business by Demand Media 2015.
• Bolt Insurance stated that one in three small business owners borrow money from family and friends, while 75 percent of young firms’ funds come from bank loans and business credit.
• Mercator Advisory Group research finds that small business credit cards account for $430 billion in spending, or about 1 in every 6 dollars spent on general purpose cards.

Here are the general steps to start building your business credit:

• Don’t be late paying bills! This shouldn’t need to be mentioned, but…it’s very important for your credit.
• Set up an EIN (federal tax ID) number for your business and stop using your social security number.
• Open a bank account just for your business, and stop using personal credit cards and accounts for business expenses.
• Set up a business-only credit card, too.
• Work with a few vendors (at least 4 or 5) to set up a line of credit.

Business credit is the lifeline for a business. It enables you to obtain the capital you need to expand, cover day to day expenses, hire additional staff and allows you to conserve the cash on hand to cover your cost of doing business.

When you take the necessary steps to build business credit, your business will have more financial opportunities. Banks, lenders and suppliers rely on business credit reports to assess the creditworthiness of a company. With strong business credit, you create a safety net for your business so it will be easier gaining access to the business funding you need.

Building your business’s credit score can involve a variety of different steps.

Below we will explore the three most important steps that you must follow if you are looking to improve your business credit score in a non-complex and straightforward way.

Step 1: Make Sure to Properly Set Up Your Business

Here is the first and one of the most important steps that you can take in order to improve your business’s credit score. Ensure that you have set up your business properly- satisfying all of the legal requirements that are involved.

Use the Right Business Structure

Choosing the right business structure can go a long way in ensuring your business radiates a certain element of credibility and reliability. Your best option here is to incorporate your business- registering it as either a Limited Liability Company or as a Corporation.

Business credit score cannot be improved if you are working as a sole proprietorship as your personal and professional finances are not legally distinguished as two separate entities.

Get an Employer Identification Number (EIN)

After you correctly register your business (taking into account your most favourable business entity structure) you will be required to set up an Employer Identification Number (known as an EIN).

It is worth noting that your company will need to satisfy a plethora of legal prerequisites in order to be eligible for an EIN- including being incorporated.

Set Up a Business Bank Account

Setting up a business bank account will: a) provide you with a plethora of financial benefits (such as loans), and b) improve your financial organization by separating your personal and non-personal finances.

Get a Business Phone Line

Whilst this point may not seem as important when talking about business credit, it is important in relation to the way in which lenders will view your company, and consequently the way in which they decide whether to extend your business credit or not.

Get a Business Website

Getting a business website can help you improve your business credit in a similar way to getting a business phone line. Overall, it will act as an active representation of your company’s image, and will also provide crucial information that lenders will rely on to audit your personal information and history.

Step 2: Build Business Credit History

This is a crucial step, and in fact is one that can handicap a variety of business owners indirectly. This is because, in order to have good business credit, you will need to have allocated a sufficient amount of time in order to build it.

Pay All Bills and Credit Lines on Time

Paying all of your bills and credit lines on time (or early, if that is financially feasible) is undoubtedly one of the most straightforward, easy, and efficacious ways for you to build and maintain a good business credit score.

In order to ensure that you never miss a business payment inadvertently, you should take steps to: a) organise reminders via your business’s calendar apps (such as through Google or Microsoft), and b) always prioritize your bills by importance.

Set Up Net-30 Accounts

Net-30 accounts allow businesses to pay for any business product or service that they need up to 30 days later after they purchase it.

Aside from the obvious general cash-flow benefits which businesses can enjoy as a result of having a Net-30 account, adequately repaying these payments on time can go a long way in successfully building a business’s credit history, as these vendors report directly to U.S credit bureaus.

Step 3: Know What to Avoid When Building Business Credit

Avoid Predatory Lenders

Whilst these can seem harmless initially, these predatory lenders are becoming increasingly ‘’sneaky’’, offering exorbitant loans coupled with very high daily interest rates which- in pragmatic terms, makes repaying them back on time almost impossible.

Having Outdated Business Information

Not properly updating your business information is one of the most easy and negligent ways to hurt your company’s business credit score; this is because it can indirectly affect a plethora of the important steps mentioned above.

Final Thoughts

Above we have delineated the most important steps that business owners can take in order to adequately ‘’fix’’’ their business credit score.

Good credit is not a commodity to be bought or sold; it’s something which has to be cultivated with time. All it takes is the right strategies and financial moves to acquire a good credit rating and its associated perks.

Your credit score falls anywhere between 300 and 850. The higher your score, the lower risk you are in the eyes of credit reporting agencies and lenders. Similarly, the lower the score, the riskier you are. While a good credit score can be considered anything over 720, a low credit score is permanent and can be changed with some hard work and good tactics. What are these tactics? Here are some financial moves people with good credit consistently make:

Use Available Credit Sparingly

The amount of money you owe in relation to your credit limits helps determine your FICO score. This is known as ‘credit utilization’ and people with good credit don’t usually max it out. In fact, they keep their utilization limits rather low.

People with good credit make it a point to pay their bills on time every month. FICO credit scoring scale considers your payment history to be 35% in determining your score. Pay your bills on time before your due date to improve your score.

Stable Credit History

People with good credit have a long history of taking their debts seriously. They have proof of paying their bills in full and on time. Patience is key to build a positive credit history. The longer accounts are open and in good standing, the more positive weight they will hold on your credit.

A Mix of Credit

FICO considers your mix of company accounts, credit cards, mortgage loans and installment loans while determining your credit score. Those with various types of open credit like car loans, credit cards and mortgages have the best scores. So diversifying the type of credit you use proves helpful to you.

No Frequent Opening or Closing of Accounts

Frequently opening and closing accounts will cause your credit utilization ratio to change and almost always bring down your score. Every time you open a new account, your credit will automatically drop. The credit bureaus are unsure of how the new account will be used. After several months of on tie payments you will see your score bounce back.
Closing old accounts will also drop your score because your utilization and credit history are changing. Often times those old accounts in good standing are your super star accounts, giving you the best positive credit. You should only consider closing old accounts if your card has outrageous annual fees or interest rates.

Remember, you can’t get a good credit score overnight. No matter what your financial situation may be, you need time to prove your creditworthiness. Patience and good practice will increase your score on your journey to the 700 club.