Common Misconceptions About Business Credit: An Exclusive Look

Business credit is a helpful tool for companies of all sizes. Unfortunately, many business owners don’t know or have misconceptions about business credit and how to use it. Understanding and debunking those misconceptions can help enterprises secure the financial help they need at their convenience. 

Business credit isn’t essential

With business credit, companies can keep their cash moving at any time during the fiscal year. If you’re nervous about the idea of purchasing on credit, worry not: having business credit doesn’t mean you have to use it all of the time. Instead, you can use it when you need it. Business credit helps manage and track expenses, which is why many business owners sign up for future-first corporate cards from providers like Divvy

Business credit offers low limits and high-interest rates

This misconception keeps business owners from investigating their options. Many business credit accounts have limits over $10,000 with affordable interest rates. Company owners can build their business credit faster than any consumer, so many business owners have several credit card options with varying benefits. 

Businesses struggle to build their credit

Securing a business credit card or vendor credit is more straightforward than building consumer credit. The easiest credit to receive is vendor credit, which involves a merchant giving your company a trade line of credit. If you choose this route, select a vendor that reports to business credit agencies so you can begin to build your company’s credit history. Find out at Daily Prosper if it is illegal to use a business credit card for personal use. 

When you have vendor credit, your limit will usually be low, between $500 and $1,000. The vendor might assign a Net 30 term rather than offering you a revolving line. You should choose your first vendor credit account from a business that stocks things you regularly use, like printer ink or shipping materials. 

Once you’ve achieved a solid credit history with a handful of vendors, your business can qualify for credit in the retail tier. As long as you continue to pay your bills on time and show your creditworthiness, you’ll be able to earn more credit towards a fleet of cars or other purchases. 

My personal credit is good enough to use

Solo entrepreneurs and small business owners often turn to their own credit for business purposes. While it may be an easy route, it can be fraught with potential problems. If your business fails, your credit could suffer damage for years to come. 

Of all business credit misconceptions, using your consumer credit is the one that business owners struggle with the most. Tying your assets to your business could cause you to lose your home and more if your business fails. It could be years before you repair your credit score. Smart business owners keep their private accounts and business accounts separate. 

My business doesn’t need credit

Some businesses don’t need credit, but it is nice to have it available when you do. The best time to apply for business credit is when your business is doing well, as lenders see your success. When your business is struggling, lenders might shy away. 

Wrap up

Company owners should familiarize themselves with business credit truths and misconceptions. Business credit is a valuable tool that allows company owners to track their expenses and build market resilience. 

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