As we move towards 2023 , several changes are expected to take place in the business world. One of the most significant changes will be in the way businesses use credit. In this guide, we will discuss everything you need to know about business credit in 2023 , including how it works, how to obtain it, and how to maintain it.
What is Business Credit?
Business credit is the ability of a company to borrow money or obtain products or services on credit. Similar to personal credit, business credit is a score that represents how likely a company is to repay its debts. This score is based on a company’s credit history and financial standing.
Business credit is essential for companies that need to purchase inventory, equipment, or other assets. It is also necessary for businesses that need to borrow money to expand their operations. Business credit can also help companies establish relationships with suppliers and lenders.
How Does Business Credit Work?
Business credit works similarly to personal credit. It is a score that ranges from 0 to 100. The higher the score, the better the credit worthiness of the company. Business credit scores are calculated by credit reporting agencies, such as Dun & Bradstreet, Experian, and Equifax.
Business credit scores are based on several factors, including the company’s payment history, credit utilization, length of credit history, and the types of credit used. Companies can improve their credit scores by paying their bills on time, keeping their credit utilization low, and maintaining a long credit history.
How to Obtain Business Credit?
Obtaining business credit can be challenging, especially for new or small businesses. However, there are several steps companies can take to improve their chances of getting approved for credit.
The first step is to establish a separate business entity, such as a corporation or LLC. This will help companies separate their personal and business finances and protect their personal assets in case of a business failure.
The next step is to obtain an employer identification number (EIN) from the IRS. This is a unique nine-digit number that identifies a business for tax purposes. Companies need an EIN to open a business bank account and apply for credit.
Once a company has established a separate entity and obtained an EIN, it can start building its credit history. To do this, companies can apply for a business credit card, open a business bank account, and make timely payments on all bills and expenses.
How to Maintain Business Credit?
Maintaining good business credit is essential for companies that rely on credit to operate. Here are some tips for maintaining good business credit:
- Pay bills on time – Late payments can have a significant negative impact on a company’s credit score.
- Keep credit utilization low – Using too much of a company’s available credit can hurt its credit score.
- Maintain a long credit history – Companies with longer credit histories typically have higher credit scores.
- Monitor credit reports – Companies should regularly check their credit reports for errors or inaccuracies.
As we move towards 2023 , business credit will be more critical than ever. Companies that understand how business credit works, how to obtain it, and how to maintain it will be better positioned for success in the years ahead. By following the tips in this guide, companies can build and maintain good business credit and take advantage of the opportunities that come with it.