Your business credit can make-or-break your ability to get funding from external sources. Discover how you can leverage it to your business’s advantage.
These days, leveraging your business credit effectively is no longer just an option—it’s become a necessity.
But what is it exactly?
Simply put, business credit is an assessment of a business’s ability to borrow money and repay debts. It is a vital factor in securing loans, negotiating terms with suppliers, and even attracting new partnerships.
One key aspect here is your business’s credit score. A healthy credit score leads to better loan terms and increased bargaining power, as well as lower interest rates.
In this article, we will dig deeper into what a business credit is and how you can build yours. Discover how to use it to your advantage and ensure your business thrives.
Building and Maintaining a Strong Business Credit Score with Business Credit Cards
Your credit score is like your business’s financial fingerprint. Lenders, suppliers, and even potential business partners refer to it to assess your creditworthiness.
According to Equifax, a business credit score above 670 is considered good. Businesses with such scores are generally considered low-risk, making them attractive to lenders and suppliers.
One way to get a high credit score is to regularly monitor your credit report. Commercial credit reports can assist businesses by helping them make informed decisions and reduce risk. Make sure to keep it up to date. Spotting discrepancies early can save you from potential damage to your business’s credit score.
Also, pay business loans and other debts on time, every time. Doing so will show your reliability which is a major factor that impacts credit scores.
Using Business Credit for Managing Cash Flow
According to Score, 82% of small business failures are due to cash flow problems. As such, cash flow management is crucial for the survival and growth of any small business.
Business credit, when leveraged strategically, can keep your business operations running smoothly even in times of cash flow unpredictability.
Let’s say you’ve been experiencing an irregular monthly revenue.
You can tap into a business line of credit to cover short-term cash flow shortfalls. A credit line allows you to draw much-needed funds up to a predetermined limit and offers flexible borrowing options.
Another method is to take advantage of trade credits with suppliers. Negotiate payment terms with them to ensure your business runs uninterrupted until your revenue becomes more stable.
Leveraging Credit for Investments
Investing in growth opportunities for your business often requires capital. But business cash flow alone may not be sufficient for it.
This is where your business credit becomes an invaluable resource.
Loans can help finance your business’s growth opportunities. And, as mentioned, a positive business credit opens your business up to more funding options and at better rates. You can then use your loan to expand operations or streamline your business processes, for example. Tracking your business spend is also important, as many credit offers or rewards require you to meet a minimum spend within a set period to qualify for incentives.
In fact, according to Forbes, 42% of business owners applied for loans for expanding their business for increased market share and revenue streams.
Also, StudyFinds reported that 50% of small business owners plan to adopt new technologies. They’re willing to leverage their business credit to invest in technology that’ll lead to increased business efficiency and productivity.
Managing Debt
Debt can fuel business growth, but too much of it can be a liability. In this case, it can impact your business credit and ability to get additional funding for your business, among others.
According to Investopedia, a good debt-to-income ratio is below 43%. However, many lenders prefer a ratio of 36% or below.
Ultimately, a low ratio signals to lenders that you won’t overextend financially.
So, keep an eye on your debt-to-income ratio. Only have a sustainable amount of debts—one that you know you can eventually pay back.
Also, before taking on new debt, develop a debt repayment strategy. Make sure to pay all bills and credit card balances by the due date to avoid late fees and maintain a positive credit history. Consider how you’ll use your debt to generate enough returns in your business to pay itself off.
Align your debt repayment with your cash flow forecasts to ensure you’ll meet your financial obligations.
Building Relationships With Your Business Credit
A good business credit does more than improve loan terms.
It also allows you to build trust with suppliers, lenders, and partners. This trust can translate into better deals, more favourable loan terms, and new opportunities.
So, build a strong business credit. This can open new doors to partnerships and opportunities. Not to mention it can further reduce your business costs and improve your overall cash flow.
The Role of Business Banking in Building Credit
Business banking is a cornerstone of building and maintaining strong business credit. By utilizing business credit cards for everyday business expenses, companies can effectively manage their cash flow while establishing a positive credit history. A dedicated business credit card allows you to separate business and personal spending, making it easier to track payments, manage accounts, and demonstrate financial responsibility to lenders.
When you use a business credit card responsibly—paying bills on time and keeping balances within your credit limit—you show banks and other financial institutions that your business is a reliable borrower. This can lead to access to additional services, such as loans and credit lines, often at more competitive interest rates. Many banks allow you to apply online for business credit cards, streamlining the approval process and helping you get started quickly.
By integrating business banking solutions into your financial strategy, you not only reduce risk but also position your business to take advantage of future growth opportunities. Managing your business credit card wisely is a proactive step toward building a solid credit history and unlocking a wider range of financial services.
Choosing the Right Business Credit Card
Selecting the right business credit card is essential for managing your business expenses, optimizing cash flow, and ensuring you have access to the credit limits your business needs. When comparing business credit cards, consider key factors such as annual card fees, interest rates, and the available credit limits. These elements can significantly impact your overall costs and your ability to manage day-to-day finances.
Rewards programs, like Qantas Points or Qantas Business Rewards, can add extra value by allowing you to earn points on eligible purchases, which can be redeemed for travel, products, or other business benefits. However, it’s important to review the eligibility criteria and credit assessment process for each card, as well as the specific credit criteria that apply. This ensures you choose a card that aligns with your business’s financial situation and goals.
By carefully evaluating the features and benefits of different business credit cards, you can select the one that best supports your business needs, helps you reduce risk, and maximizes your ability to earn rewards while managing your finances efficiently.
Maximizing Credit Card Benefits and Rewards
To get the most out of your business credit card, it’s important to understand how to maximize the benefits and rewards available. Many business credit cards offer the opportunity to earn Qantas Points on eligible purchases, which can be redeemed for flights, upgrades, or other rewards through the Qantas Frequent Flyer program. By using your business credit card for everyday business purchases and ensuring these are eligible transactions, you can steadily accumulate points.
Taking advantage of special offers, such as low-rate credit cards or interest-free days, can help reduce your business expenses and improve cash flow. Managing cash advances wisely and avoiding unnecessary balance transfers can also help you maintain a healthy credit history. Always aim to pay your closing balance on time to avoid interest charges and to continue earning points and rewards.
By strategically using your business credit card for eligible purchases and managing your account responsibly, your business can benefit from rewards, improve its credit profile, and enjoy greater financial flexibility.
Protecting Your Business Credit: Fraud Prevention Strategies
Safeguarding your business credit is essential for maintaining a strong credit history and reducing the risk of financial loss. Implementing robust fraud prevention strategies can help protect your business from unauthorized transactions and identity theft. Regularly monitor your credit card accounts for any suspicious activity and report any unusual transactions to your bank immediately.
Many credit card providers offer advanced fraud protection services, including real-time alerts and secure payment systems, to help businesses detect and prevent fraud. Understanding your credit limits and credit criteria can also help you spot irregularities and maintain control over your accounts.
Keep your credit card information secure, avoid sharing sensitive details, and be cautious of phishing scams or unsolicited requests for account information. By staying vigilant and using the fraud protection services offered by your bank, you can protect your business credit, maintain your credit history, and ensure your business remains financially secure.
4 Practical Tips For Building and Using Business Credit
Building and using business credit is essential for any entrepreneur looking to grow their company. Establishing a strong credit profile can help you secure better financing options, negotiate favorable terms with suppliers, and protect your personal credit score. However, before applying these tips, consider your own financial circumstances to ensure they are appropriate for your specific situation.
Tip #1. Use Credit for Revenue-Generating Activities
To build and maintain a strong business credit, any line of credit you use should support activities that bring business revenue. For instance, focus on expanding to new markets or enhancing product offerings.
Remember, your credit should be able to generate enough returns to pay itself off. Make sure any credit used for business activities is paid back promptly to keep your credit profile healthy and ensure all transactions are fully paid.
Tip #2. Keep Personal and Business Finances Separate
It can become difficult to distinguish between your business and personal finances if they’re combined. And this can lead to inaccurate record-keeping, complicating financial tracking and management.
So, make sure your personal and business finance are separate. Separating finances helps clarify the responsibilities and liabilities of the business entity. It will also reflect well on your business credit.
Tip #3. Educate Yourself on Financial Management
Understanding the ins and outs of credit, debt management, and financial forecasting can help you make informed decisions. This is important when facing situations that could impact your company’s financial health.
For instance, it can help you determine when to tap into a line of credit for additional funding and if you can pay it back. Additionally, membership in business rewards programs can provide your business with extra benefits and opportunities, such as earning points or accessing exclusive offers.
Tip #4. Consult with Financial Advisors
A professional can offer personalised advice for your business. They can help you address specific financial situations, including those that can impact your credit score and overall business credit.
And since they stay updated with the financial regulations, trends, and market conditions, you can be sure that the advice they provide is relevant. This lets you navigate through financial complexities with greater confidence.
Leverage Your Business Credit for Growth
Your business credit can be your ally for continuous business growth and stability. It can be a vital tool in addressing the complexities that come with cash flow management.
And yet, leveraging business credit remains a pivotal strategy that’s underutilised by small businesses. This can hinder them from boosting cash flow and scaling faster.
But you can avoid being like them. If you can strategically use your business credit, you can secure your business’s position for future success.
Approved applicants for a new business card may be eligible for promotional offers, such as a waived annual card fee for the first year. Customers should carefully review the terms of their credit card account, including how each transaction is processed, when rewards are credited, and the process to redeem Qantas points. Offers may be subject to eligibility criteria, statement period requirements, and availability, so always check the conditions before applying.
If you need to quickly tap into your line of credit for additional funding, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.
