Your business credit can help you obtain a loan, expand your business and see more patients.
You may be looking at buying new equipment, trying to get a lease on a building, or seeking a partnership. Whatever you are doing to grow your business and keep it healthy, having great business credit can help you demonstrate to others that you know how to responsibly manage business finances and maintain a successful amount of profit while keeping your margins reasonable.
Even with health clinics, having good credit can still make a sizeable difference in what your business is able to accomplish.
Having bad credit can make following your chiropractic dreams more difficult—it may not be impossible to open or expand a clinic with bad credit, but you want to optimize your chances of success by keeping your business credit strong.
Follow these tips to start building, improving or maintaining your business credit.
Credit basics
Just like how personal credit works, practicing responsibility in your spending, earning and saving can help you improve your credit. With better credit, you will probably be eligible for more favorable lending terms, lower interest rates on loans, higher loan amounts and overall better deals.
Credit bureaus receive reports from your creditors—these reports help the bureaus establish your credit rating. You typically receive a numerical score that can then go up and down depending on changes in your usage of credit.
When adverse events happen such as a missed payment, your score will usually decrease. Positive steps you take, such as paying off part of a credit balance, are then reflected in your score as well.
Business credit scores
A business credit score, unlike a personal score, usually is numbered from 0 to 100, with scores higher than 75 being “excellent” credit ratings. How much debt you have, how well you pay your bills and other factors can influence this rating.
This is a distinct score entirely from your personal credit. It is possible to have great personal credit and a horrible business credit score, and vice versa.
Personal vs. business credit
For some people, personal and business credit are one and the same—this is not recommended. Initially, you may be tempted to use your personal credit to apply for a business loan.
While many people do choose this strategy, it exposes you and your business to some specific risks, such as:
- Liability: The more liability you personally accept instead of placing it in your business, the more you and your business will be bound together. For example, if a vendor files a lawsuit against your clinic, then you personally could be held to a higher standard of liability if your clinical and personal credit are combined.
- Compliance and Taxes: If you need to claim business expenses on your tax returns, for example, having your business and personal credit separated may make it easier for the IRS to accept your business expenses rather than assume that you simply spent that money on your personal needs.
- Credit Problems: If you have great personal credit but begin to rack-up a lot of business expenses or apply for substantial business loans, then your personal credit could begin to take a hit. Keeping personal and business credit separate keeps these two from damaging each other.
How do you keep your business and personal credit separate? Start by setting up your business as a LLC or corporation–this gives your business a distinct identity. You will want to seek out help from an attorney and an accountant to make sure everything is properly established.
Keep in mind that using a sole proprietorship or partnership business model runs the risk of having your personal credit history included in your business credit, so it is best to choose a business model that creates the business as a distinct entity, such as a corporation or LLC.
Getting business credit
If you are just starting out, look for opportunities to allow your business to acquire a loan, start a lease or purchase supplies on credit from a vendor. Make sure that these opportunities allow you to specifically use your business entity to obtain credit, rather than use your personal credit history.
Find an opportunity that reports your credit usage to the credit bureaus—if you build credit but it is never reported, then you are basically wasting your time if your goal is to get a business credit score and establish a history.
References
- Gass, David. “The ABCs of Business Credit.” Entrepreneur.com. https://www.entrepreneur.com/article/76886. Published: March 2005. Accessed: January 2018.
