Healthy Credit Practices | How Business Credit Works

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BUSINESS CREDIT BASICS

Understanding Business Credit Basics

A key ingredient in the development of any small business is access to capital or business credit. Entrepreneurs need capital to start, expand and maintain business operations. Being creditworthy means having healthy business credit.

Healthy Business Credit. Developing and maintaining healthy business credit can help a small business survive difficult times and thrive during peak periods of growth.

What is healthy business credit?

How can I assess my creditworthiness?

How can I improve my creditworthiness?

Where can I find credit assistance?

The Relationship between Risk and Healthy Business Credit. Understanding risk the first steps in understanding creditworthiness. Credit risk is the term used by lenders in defining its perception of the likelihood that a loan will be repaid by a borrower. The higher the perception that the borrower will be unable to repay the loan, the higher its risk profile.

BUILDING A SOLID CREDIT FOUNDATION

Building Creditworthiness

Creditworthiness can develop over time as the business ages and grows. Buts this is not always the case. Lender's use a series of factors to assess the potential risk associated with a company. When combined, these factors paint a picture of the potential risk associated with the company. Banks call this a risk profile.

Understanding the factors used to evaluate creditworthiness can help a business owner to better manage its risk profile and improve its capital accessibility.

Because credit granters establish their own formulas for credit approval, the exact criteria used by individual banks, lenders, credit card companies or suppliers will vary.

Knowing this, we will focus on a several factors commonly used to in business credit decisions.

The Healthy Credit Practices Program uses 8 key factors to measure business risk.

We call these factors Pillars of Performance. Improving performance in each of these areas, will demonstrate increased signs of stability, and strengthen the company's credit foundation toward achieving healthy business credit.

Pillars of Performance

Revenue Stability

Cost Controls

Positive Credit Behaviors

Management Capability

Reliable Financial Systems.

Strong Fiscal Management

Consistent Profitability

Personal or Business Assets Base

		BUSINESS CREDIT vs. PERSONAL CREDIT
Personal Credit Personal credit is intended to be used for the of purchase of goods or services that support an individual's family or lifestyle. Some examples include household items, vacations, educational costs, personal vehicle financing, residential mortgages or personal credit cards. However, thousands of entrepreneurs each year launch businesses using personal credit. Although it is often a faster way of securing capital to start a business, the continued use of personal credit for business purposes can deplete the individual's personal credit rating and can also adversely impact the business owner's ability to develop creditworthy business enterprise. After a new business is started, it is vitally important to begin establishing business credit. Business Credit Business credit is designed to fund costs directly associated with the operation, management or expansion of the business, with the goal of increasing both company revenues and profits. It is however, important to understand the relationship between business and personal credit because the manner in which personal credit is managed may impact the company's ability to secure and maintain access to business credit.
		HEALTHY CREDIT TIPS
Business Credit Tip #1 Prepare a credit use chart. Take time to prepare a detailed Credit Use Chart before applying for business credit. The chart should include the amount of funding required along with a list the items needed, the cost of each item, the anticipated source of repayment and the length of time needed to repay the funds. If you are not sure what type you need, use our Credit Match Tool to learn more about the different types of business credit and find the type that's right for you.