Does Business Credit Matter When Investing in Commercial Real Estate?

April 12, 2022

When you started with your business, you might have operated it from your home or a small place for rent. But now with the needs changing, you need to get settled with a larger space. Or there might be cases where you already own a good real estate portfolio but you are aiming for an expansion now. You need to buy some commercial real estate but how would you do it? Commercial real estate is always a big purchase and you might be needing an outside investment to initiate it. As an owner, you can take multiple routes, some of which are discussed in the article below.

How are business credit and personal credit different?

This is the question that many of us do not have the correct answer to, not even the business owners. Business credits are normally used by lenders or vendors or absolutely anybody in the business sphere. The credit score of your business will determine if it has been financially responsible in the past and if it can be trusted in the present.

This might sound similar to personal credits. Business credits provide a picture of your financial history to the lenders. However, business credits need to be set up using a few more steps as compared to personal ones. Also, the score calculation is different in each case. While personal credit scores are awarded by following the FICO score, business credit does not use any such specific model.

What does business credit impact?

A business owner will have specific expenses which won’t be paid out using their own money every time. Many of those expenses would be needing loans, lines of credit, or some other financing model to get done with the purchase and the repayment. The business’s credit history will be helping it to receive outside assistance or funding. And, the company with a high credit score will have the best approval odds when they apply for the funds. Also, better credit scores can help them with flexible repayment terms and lower rates of interest.

Today, there are many financial companies that can offer you various business loan solutions to meet your daily requirements. They offer easy repayment terms and their interest rates are also lower.

How does it matter when investing in commercial real estate?

Investing in real estate is a costly affair. And, when it is about commercial real estate, things can get much more complicated. Usually, most business owners need external funding or take a debt to buy the properties. And luckily, today, there are multiple options that would help you offset the costs of the commercial real estate investment.

Businesses that have a strong financial credit background will easily qualify for the safest financing options. They can get government-backed loans with the lowest interest rates. Other private lenders are also an option for you. They will be more lenient and will give you easy short-term loans. These have higher interest rates and are good for businesses that have poor credit scores.

How to start building the business credit?

With business credit being an important aspect of any business, it is important to have a good credit score. It is more like building your credit and would take some time and effort. So here are some of the ways to improve your business credit rating:

  • Dispute the incorrect credit hints on the account

Your state might have credit bureaus operating. They have ways to help the business owners to fight cases of dispute. They have their working method and any incorrect information on your credit profile can be directly rectified by them.

  • Pay away the due balances

The best way to upkeep your credit score and not mess with it again is by paying back them on time. This will be immensely helpful in lowering your credit score in a lesser amount of time. If you are missing out on any payment by chance, find out the ways with which it can be resolved as quickly as possible. You need to now focus on methods to keep up with the payments in the future. You can also start by paying more than what is required of you and you can easily repair your low credit score.

  • Keep personal and business finances separate

Building your business credit will almost be impossible if you use a personal credit card to make business purchases. If you need something for the business, make sure that you are using the business card or a line of credit preferably to make the purchases.

  • Consider lenders who report to credit bureaus

Not every vendor/lender you are working with will be working with a credit bureau. This means your timely payments are not getting reported and this might not be positively impacting your score. Therefore, always choose people who report to a credit bureau without fail.

As you are starting to improve your business credit score, you need to be patient as this would need time. A few months of on-time payments cannot instantly improve your score. You need to keep a constant check with the bureau to know your status.

Carlos Diaz
I believe in making the impossible possible because there’s no fun in giving up. Travel, design, fashion and current trends in the field of industrial construction are topics that I enjoy writing about.

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