Article by Joseph Brady, Reliant Funding
The business credit score is the yardstick against which your financial health is measured. Owning a restaurant is the dream of many in the US. Acquiring loans and insurance becomes easy if you have an excellent business credit score. Starting your business credit is an easy and essential process that you should do to secure the financials of your restaurant.
Personal Credit and Business Credit – 2 Different things
Most of the business owners assume that having a personal credit score alone is sufficient for their business, but this is not the case. Banks consider your restaurant’s business credit score to increase your credit value and thus it’s mandatory for you to differentiate your personal and business credit.
You might be facing problems in getting approvals for your business credit cards with no or minimal credit and hence might be using your personal credit score, but make sure you start a business credit once you establish your restaurant.
All this said and done, maintaining a good personal credit score is essential as it might impact your business. Nowadays it is becoming increasingly common to analyze the business credit by blending the personal credit performance too.
How can Credit Score Impact Your Restaurant?
In the whirlwind of activities happening in your restaurant, you might miss out on following or improving your credit score but, this neglect can cost you a lot.
- Cash Flow Management: As a restaurant owner you might be aware that paying your vendors before the stipulated time is a huge challenge and would have felt that a little extra time will be helpful. If your business credit score is substantial, you can renegotiate with your vendors, gain their trust and ask them for a deadline extension.
- Expansion Plans: You need restaurant and bar financing especially when you are looking for expansion. Growing your business is the next big step, and it’s not good news if your expansion plans are halted because of a bad credit score.
- Impact on Personal Credit: For those who have a combined credit record for both your personal and business accounts, you might see an artificial deflation in your personal credit. This might affect many of your personal finance requirements and future business requirements.
- Insurance Rates: Insurance companies check your credit rates before providing your restaurant insurance plan. If the credit rates are excellent, then the insurance rate can be lowered.
- Sale Prices: If at any point you want to sell your restaurant, then a great credit score can help you acquire higher sale offers.
Building Business Credit
Building a business is a process that involves continuous and calculated effort. As a first step to creating a strong business credit first check the value of your personal and business credit. If you do not have a business credit then create one.
When you work with vendors, choose those that report payments to the business credit bureaus. Make sure to ask your existing vendors if they will be reporting these payments as it might be a good way to increase the business line of credit.
Next is to pay up your dues on time or even well ahead of the last date. All the payments you do to your vendors, lenders or credit card issuers are tracked. The Dun & Bradstreet rating is from 0-100 and the maximum score can be obtained only if there is no history of overdue payments to the vendors. The payments also impact your credit score and the late payments may even be recorded in your business credit report.
Many factors like trade line, vendor relationship and cash-flow management can affect your business credit. When checking your credit report make sure it has covered all aspects of your credit line and also look for errors periodically. If there are any mistakes then file a dispute with your business credit bureau.
Though we have discussed predominantly creating and improving a new business line of credit, we also need to touch upon how to remove negative scores in the existing credit. Not every restaurant start-up has a clean slate when it comes to business credit. There will be a share of financial mistakes or neglects that would have occurred during the initial few months or years of the business. The Fair Credit Reporting Act allows you to accurate your credit report.So, remove your negative credit report information by filing a dispute with your credit bureau.
Running a restaurant or owning a small cafe has been romanticized by many, but it’s not as breezy as it looks. Creating your own mark in this industry is extremely tough as the competition is stiff. But, maintaining a good credit score, regulating and optimizing the processes and being on top of the latest trends in the restaurant business can take you a long way!
Joseph Brady is Senior Director of Digital Marketing for Reliant Funding, a provider of short-term working capital to small and mid-sized businesses nationwide. He has more than 14 years of experience in B2B digital marketing, optimization and operations, with a focus in the financial services market.
