Most travel agency owners understand the importance of building a strong customer base and diversifying their revenue streams, but what about prioritizing their business finances? It can be difficult to manage your own travel business finances when you focus solely on your personal credit.
However, having a good credit score can help your small business scale and make it through tough cash flow months. In this article, we will outline everything you need to know about the management of your business finance picture, including outlining the business finance definition, highlighting the importance, and discussing different ways small business owners can build their credit.
What is Business Credit?
Just like individuals have personal credit scores, businesses have their own credit histories and scores. Business credit reports evaluate your ability to repay existing and future debt by analyzing your past lending history. Common information found on your business credit history includes late credit card payments, outstanding loan amounts, liens filed against your business, and information from public records.
There are different ways you can check on your business credit, but the most common route is through online programs, such as Experian or your credit card company. These platforms issue a FICO score, which includes several years worth of information. If your agency is just getting started, you may notice a lower score, indicating you need to up your credit building initiatives.
Why is Your Business Credit History Important?
When it comes to business finance, your business credit history plays a major role. Business credit reports are one of the major factors that prospective lenders and investors will analyze. If your business model doesn’t prioritize building a strong credit history, you may not be offered the opportunities you need to grow your agency.
One of the first pieces of financial information prospective lenders will pull is your FICO score. If your business is set up as a single member LLC or sole proprietorship, this might entail pulling your individual credit report. However, if your business has a separate identification number, your lender might utilize that history report.
This makes building both your personal and business credit important, especially if you are personally guaranteeing a loan or line of credit for your agency.
How Can You Build Your Business Credit?
Ensuring that your travel agency prioritizes credit-building activities in your business model is essential, especially as a new business owner. The good news is that there are multiple ways you can build up the credit history of your small business. First, start with checking your business credit score. You might have an outstanding invoice or lien that you forgot about. Cleaning up all past-due items and errors should be your first priority. Then, consider engaging in credit building activities, including:
Business Credit Cards
Business credit cards are a great way to start establishing your business credit. A common misconception that small businesses have is that credit card debt is bad. Although credit cards can come with high interest rates, they can be a great way to add flexibility to your business, while building up points, cash back, and your credit history.
Be sure that credit cards are taken out in your business’s name. You want the credit history to be associated with your business’s identification number. Then, put general business expenses on this card, such as travel blog expenses, marketing expenses, professional fees, software costs, and more.
Business Loans
A business loan could be used for a variety of purposes, such as purchasing new fixed assets, paying for startup costs, or infusing extra capital into your agency. Business loans generally come with set repayment terms. This can be beneficial for a small business owner that likes to plan fixed expenses; however, there is less flexibility with this type of bank loan.
A business loan doesn’t always need to be taken out through a traditional financial institution. In fact, there are agencies, like the Small Business Administration, that provide loans to both existing businesses and new businesses. You don’t always need good credit scores to obtain these loans as terms and eligibility can be more flexible.
Business Lines of Credit
Another way to improve your business’s credit history is to obtain a business line of credit. This is different than a regular business loan and gives your agency the ability to constantly draw on the line up to the limit. Business lines of credit can also help build your business credit history.
Lines of credit can come with higher interest rates but offer flexibility when your business is low on funds or needs to make a large purchase. When it comes to loan applications for a line of credit for your own business, you want to be sure that the loan is under the business name.
Vendor Payments
Vendor payments can also show up on your business credit reports. Missing vendor payments can lead to potential liens against your business, which impact your business credit. Keeping accurate accounting records helps ensure that your business is remitting timely payments.
Liens against your agency will not only negatively impact your business credit, but it can also place your business at risk for further financial losses from fines and penalties.
Summary
How can you build your business credit? Effective business finance management often takes a comprehensive approach, solving credit issues in your business and personal finances. This is why working with an expert is indispensable.
Find an accounting expert that understands the travel industry and can give you tailored solutions to build your business credit. Maybe you find that taking out a credit card to use for purchases helps you grow your credit score or that a line of credit both solves your cash flow issues and improves your FICO score.
Whatever the case, you want to have an expert working alongside you to help you reach your financial goals. Reach out to one of our team members today to learn more.
