Published By Faith Stewart at March 1st, 2022
Here at Credit Suite, we always talk about building business credit. There are several ways to do that. However, we feel the best way is to work through vendor credit tiers. This allows you to add accounts to your business credit portfolio as you qualify. By doing this, you build your business credit score while building your business credit portfolio, allowing you to access funding as you go. This, in turn, promotes business growth.
Is business credit really necessary? If most business loans require a personal guarantee and report to your personal credit report regardless, then what’s the point?
The point is, you can leverage business credit to grow your business faster than if you rely on personal credit alone. Did you know that even before you qualify for a business credit card, you can get vendor credit? Not only are vendor credit accounts a proven way to start building business credit, but you can use them to get quality products that you need. Of course, that is essential to business growth.
A contractor is hired to remodel a kitchen. The supplies are going to cost money, but the client isn’t going to pay until the job is done. The contractor has business credit with vendors. He can use those accounts to purchase the supplies, allowing him to take the job and pay his suppliers after his customer pays. This is just one example of how vendors can help a business grow.
Think of a business credit portfolio as a “cash flow pool.” It is the total of all the business credit accounts you have. This includes:
These accounts allow you to better manage cash flow. You can cover cash flow gaps off-season, if yours is a seasonal business. You can stack cash and pay off your invoices at the end of the month.
Start with tier 1 vendors to get initial accounts. This is the beginning of your business credit portfolio. As your business credit score gets stronger, you can add vendors from tier 2, tier 3, and tier 4, until you have access to advanced vendors and business credit cards.
As you do this, your terms will get better also. While tier 1 vendors may offer net terms as low as 15 days, advanced vendors may offer terms up to 90 days or more, or even full revolving terms.
Advanced vendors offer credit to businesses that have strong business credit. However, they do not report your payments. Still, they are pivotal to running a thriving business. Unlocking access to these vendors is a little-realized benefit of a strong business credit score.
Good business credit will make SBA loans more accessible, and SBA loans have great rates and terms. It will help you to get good terms with new vendors, and of course you’ll be able to get even more credit cards.
With better business credit, you can afford cars, trucks, sprinter vans, supplies, and inventory. As you go along, you’ll enjoy improved credit limits. Also, you’ll pay lower rates and have longer amortization, because you’re spreading out payments over time.
This is another way you can leverage business credit for fast growth. Emergencies are going to happen, and they can definitely stunt business growth. Save your funding for growth, and not emergencies.
By using business credit to scale and grow your business, you will have cash flow available to handle unexpected expenses.
A well-rounded business credit portfolio can include both PG and non-PG financing. In general, personal guarantees should be avoided, but sometimes you just can’t avoid them. That’s okay.
Try to negotiate for limited personal guarantees over unlimited ones. The stronger your business credit score, the easier this will be in most cases. Limited guarantees have a cap on how much you are personally responsible for.
If a personal guarantee will help you qualify for funding or credit cards, and you wouldn’t qualify without it, then it can be a smart decision to offer one in some cases. That’s just more business credit you can leverage for fast growth. Credit Suite can help you build strong business credit in the most efficient way possible without a personal guarantee, saving you time and money.