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3 ways business credit impacts your retail company

Guest Blog by Levi King

Between managing inventory, staff, and pricing, you can be busy—really busy. Paying attention to business credit may be the last thing on your mind, but credit really is the lifeblood of any business. You can’t afford to take a wait-and-see approach.

Unlike personal credit, your customers, suppliers, vendors, and lenders can (and do!) make decisions based on your business credit without your permission or your knowledge. You may not know it, but your unhealthy credit may be holding you back.

By exploring the different ways business credit impacts your company, you can take charge of your credit health to grow and protect everything you’ve worked so hard to build.

1. Vendor and supplier relationships

When reviewing credit worthiness, vendors and suppliers will pull a retailer’s credit and look at payment histories. This is the most common use of business credit, and likely the most overlooked.

Good credit ensures you get the products, supplies and services you need with the best possible terms, giving you more time and money to dedicate to other parts of your business. These lines of credit are essential and help free up valuable cash flow. Companies with healthy credit can usually negotiate net 30-, 60-, or even 90-day terms with vendors and suppliers, as well as secure higher credit limits.

Even if you know where your business credit stands today and are comfortable with your credit terms, it’s vital to regularly monitor your credit to avoid any surprises in the future.

As noted by the Small Business Administration (SBA), the credit score of about one in three businesses declines over just a three-month period. When it happens, it happens fast! Vendors and suppliers may regularly check to see where you stand, and if your credit deteriorates, they can stop or adjust your terms.

2. Traditional lenders

Banks and credit unions provide most of the loans, credit lines and credit cards that business owners usually think of first when it comes to business credit. And for good reason: these lenders can keep the cash flowing when you need it most.

According to the SBA, insufficient or delayed financing is the second most common reason for business failure. Protect yourself by understanding where your credit stands and the amount of funding you can qualify for—before you need it.

And since nearly all conventional and SBA loan applications are now evaluated manually instead of automated underwriting, managing both your personal and business credit profiles is more important than ever.  Lenders are looking at both, with 47 percent saying business credit scores are an important underwriting factor (Federal Reserve of Atlanta survey, March, 2009).

The same holds true for business credit cards. Most lenders use a combination of personal and business credit scores to determine amounts and terms. For businesses with a poor credit rating, interest rates may double.

3. Merchant processor discount rates

When you sign up to accept credit card payments, the acquiring bank transfers cash to you and assumes the risk that there will be a charge back. They see this as a loan, so when you apply for merchant processing, your credit health will be evaluated.

Your good or poor credit profile impacts the discount rate you pay for every transaction—anywhere from 1 ½ percent to 3 percent. For businesses with small profit margins, changes to this rate can make a big difference to the bottom line.

Make your credit work hard for you

By taking a proactive approach to your business credit health, you can ensure that lenders and suppliers view you in the best light, saving you money and helping you avoid business disruptions. You work hard to run a successful business—make sure your credit  works hard for you.

Levi King is the CEO and founder of Creditera

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