Debunking Business Credit Myths
Before you start trying to apply for loans or credit for your business, it’s important to eliminate any mystery or confusion surrounding business credit.
First, notice that in financial terms, a business isn’t much different from a person. A business earns money, pays debts, uses credit and files tax returns, and so do people. For that reason, credit scores for businesses aren’t much different from an individual’s score. Because many business owners think that their business’ credit process is significantly different from the way it works for individuals, they get confused and start imagining things about the process that simply aren’t there.]
One of the biggest misconceptions that people have is that a commercial credit card offered by a business is somehow different from a credit card offered by banks. This is simply not true. A business offers credit to customers who take on legal liability to pay off any credit that they draw, and the same goes for standard, bank credit cards.
Many people also falsely think that not many business offer their own lines of credit, but in general, most major businesses do. However, they tend not to advertise it because many of these businesses offer lines of credit that don’t require a personal guarantee. So, they simply don’t want to be advertising that they’re offering credit without the need for a personal credit check or guarantee.
Another common myth regarding credit offered by businesses is that the credits limits are low and the interest rates are extremely high. In fact, the opposite tends to be true, and the high credit limits and low interest rates make these lines of credit very practical and sensible. For example, a business owner can get credit cards with $10,000 limits even without an impressive personal credit score. Also, since a business owner will order several or many cards, they can take advantage of that opportunity to develop a great credit score for their business.
In addition, the incentives for using these business forms of credit are very similar to using standard personal credit cards. In fact, businesses tend to have and offer more incentives than ever before, making business credit a very savvy and timely choice.
A very subtle downside to business credit is that your business’ credit score only goes up if it works with creditors who actually report to credit agencies. If they don’t report, your credit score remains unaffected.
With all of this in mind, eliminate all of the misconceptions you may have had about a credit as it relates to businesses. Take advantage of this knowledge for excellent credit limits and incentives.