If you are serious about your business, you should be serious about building business credit, especially if you are a minority business owner.
Business credit is a great way to get money for your business without:
- Cash flow
- A credit partner
- A guarantor
Having poor business credit history or no business credit history can throw a monkey wrench in your business plans. Therefore, knowing how to build business credit is crucial for your business.
Here are the 3 Reasons Why It’s Essential For Minority Business Owners to Build Business Credit.
1. Most Minority Business Owners do not have a Business Credit Score.
We all have a personal credit score, but your business should have one too. Your business credit report is your transcript for your business. When you try to get a loan from a bank, they will look over your business credit. Your business credit report will help determine whether or not you get approved. By paying your bills on time, you can display a great payment history with your creditors. Whether your business is new and has not yet established credit, or if your business is established has taken some credit hits, it will be necessary to build a good Paydex score.
Your Paydex score is very similar to your FICO score, which is used is used to track your personal credit except your Fico scores range from 300-850 while, Paydex score are between 0 and 100. The higher the Paydex score, the more confident a lender can feel about approving your business credit lines or loans. A score of 75 or greater is considered excellent.
Even as a startup company, your business can establish business credit immediately. Building business credit is very important as it can help your company secure loans in the future. Click here to learn different ways on building business credit and developing a good Paydex score.
2. Minority Business Owners typically have lower personal credit scores.
According to the chart below, only 14% of Black people have a personal credit score of 760 or above, which is the lowest percentage amongst all races.
Black-Owned business owners can raise the bar by having both healthy personal and business credit profiles. Typically, it takes at least 3-6 months of good credit behavior to see a noticeable change in your credit score, but we have seen positive results after just 30 days. If you are interested in raising your personal credit score, Leap 21 can help put you on the right track. All personal credit packages are $1.00 Click here to get started.
- Minority Business Owners rely on Personal Credit for Business.
According to a survey on Minority Owned Firms, Black business owners rely on personal credit instead of business credit and it hurts them in the long run. If your company does not have a business credit profile, you are only left with one option; to use your personal credit score. If you have a good credit score, that’s great, if you don’t; banks may deny your application for credit. You may also get denied because you don’t have a business profile.
Did you know that if you have a good business credit profile and only decent personal credit, your odds of getting approved for business credit are still high?
Even if you have a great personal credit score, as a business owner, you should have a great business credit profile as well. Having both profiles will make your business more attractive to lenders.
The survey on Minority Owned Firms also showed that:
For many minority-owned businesses, key performance indicators like profitability and revenue growth, lagged White-owned firms.
Minority-owned firms relied a greater extent on personal funds, and on personal credit scores when applying for financing, than did White-owned firms.
Minority-owned firms’ loan applications tended to have worse outcomes (not controlling for other firm characteristics) than did the applications of White-owned-firms, particularly at small banks or online lenders.
Dissatisfaction with a lender is relatively high among Black and Hispanic-owned firms.
Your company can get business credit immediately, even as a startup. Establishing good business credit is very important for your business to help your company get loans in the future. As a minority business owner, you want to maintain both a strong personal and business credit profile. Make an appointment with Leap21 today to discuss your credit profile. It’s FREE!