A business credit portfolio, which includes business vendor accounts, business credit cards, fleet business credit cards, and business credit cards, is a business credit system to maximize business finance. Why is a business credit portfolio important to you as a business owner? An established, solid business credit portfolio helps you to control monthly expenses, because it makes it easier for you to satisfy them without sacrificing or restricting your cash flow. Even if you have cash to pay for your expenses, it is wise to utilize business credit and pay it off before interest accrues, because these accounts report to the business credit reporting agencies, thereby building and solidifying your business credit portfolio. This portfolio is accessed by lenders and creditors, and proves your creditworthiness, which translates to maximum fundability for your business.
In order to build a business credit portfolio, start by establishing vendor accounts. These usually do not require collateral, cash flow, or good personal credit. 97% of vendors do not report to business credit reporting agencies, so it’s important to choose ones that do. Those which report will help to build a credit profile and score almost immediately because they report to the agencies within 60 days. Terms vary but many are net term 30 days. It’s extremely important to pay consistently early or on time.
Who is in charge?
Once you have five business vendor accounts, begin to establish retail credit from places like Staples, Lowe’s, Amazon, etc. Retailers check for uniformity in your business information and whether your business is licensed properly. Again, pay on these accounts early or on time, as it will strengthen your portfolio.
After you’ve established eight accounts on your business credit report, apply for fleet credit. This is used for fuel, vehicle repair, and maintenance. In other words, these are gasoline credit cards issued by BP, Chevron, Sunoco, etc. If you’re not in business long enough to qualify for fleet credit, you can still get it by providing personal guarantee or a deposit. Continue to pay early or on time, further solidifying your portfolio.
Finally, once you have at least fourteen accounts on your business credit report, you can apply for bank credit cards such as Visa, Mastercard, and American Express. These will give you optimal spending power to purchase supplies and materials for your business without restricting or sacrificing cash flow.
Build Business Credit Portfolio
A business credit portfolio increases a business’ value tremendously; a business with an already established credit profile is worth far more than one lacking credit, because it has maximum fundability. Therefore, it is much easier for such a business to procure credit to utilize for the following: cash protection (offset cash with credit and save the cash for items such as payroll, for which you typically cannot use credit); purchase supplies, etc.; increase account and expense management; and business growth (not operations). You will save on interest if you pay the credit in full by the due date, and you’ll also earn points, cash back, etc. that you wouldn’t otherwise get if paying with cash. Plus, you’re simultaneously building business credit and increasing the fundability of your business.
Business credit helps to save funding for growth, not emergencies or operations; increase cash flow/credit for the unexpected; shows lenders and financial institutions that you know how to properly manage your money; and build trust with financial institutions and lenders by managing cash flow and proving creditworthiness. Use your business credit as a leverage to help your business expand and become profitable.
Good Business Credit Portfolio
A good business credit portfolio will also save money and increase cash flow for your business because it enables you to buy in bulk to get discounts, which can equate to substantial savings; save on insurance premiums because your business will be considered less of a risk; pay lower deposits on equipment; and more easily calculate risk for jobs or projects. Saving money by paying lower rates, getting cash back/points on cards, and better terms on financing/leasing increases your profit margins, gives you more cash flow. This especially helps if you have overextended projects. In addition, the overall value of your business will improve.
Advantages
In addition to all the advantages mentioned above, a solid business credit portfolio leads to even more credit access. Net accounts translate to revolving credit. The more accounts on your credit portfolio, the more approvals you’ll receive, with improved limits and better terms. The more you use credit responsibly, the more offers your business will get. This eventually leads to greater accessibility to SBA loans, which have the most stringent requirements but conversely, the best rates and terms.
It takes time and effort to build business credit, but it’s well worth it, as the benefits to your business are enormous. Be careful not to overextend yourself, especially when just starting your business. Remember to use credit as a leverage to increase the fundability and overall success of your business.
