"As a business owner, I know I need to borrow on an ongoing basis and a business credit line sounds like a good idea. But how can I be sure I'm using credit responsibly?"
Having a strong credit profile is crucial to the operation and success of any business. By using your credit responsibly, you can build an excellent credit score that will be advantageous to your business and help it grow.
Here’s what you need to know about using business credit responsibly:
Why businesses need credit
Build credit for future use
Responsible use of credit in your company’s name is the best way to create and maintain a strong credit history. This will serve you well when you need to take out a loan for your business. You’ll be more likely to be approved and get better terms.
Manage cash flow
Cash flow issues are often the biggest challenge for small businesses. A strong credit line can help you fund daily operations, cover expenses, and purchase inventory ahead of demand.
Using credit responsibly
Once you have your card in hand, make sure you know the dos and don'ts of business credit card use. Responsible use of credit can be one of the best things you can do for your company.
Do:
- Use credit for as many regular expenses as possible to maximize your rewards.
- Pay off your credit card balances on a weekly or bi-weekly basis.
- Negotiate for the most favorable APR and terms.
- Get a line of credit for your employees if they often need to charge expenses to the company’s account.
- Set different spending limits on specific credit lines.
- Carefully review your statements each month.
Don't:
- Skip a payment on your bill.
- Exceed the recommended 30% utilization ratio.
- Let your balance build up over time, or you may find your business falling into the debt trap.
- Use your credit to pay for expenses your business can’t really afford.
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