When I started my first business, I had everything going for me. To be sure, I was terrified, but I was also young and full of grit and determination. Being confident that you’ll succeed is sometimes half the battle — so is having the courage to work hard, and being raised on a farm in Idaho toughened me early. As a child I was entrusted on a daily basis with responsibilities that would daunt many adults.
I also knew my industry. I’d put myself partway through college working for an electric sign company, and now I was founding one of my own. Basically, I convinced myself that these two factors — a diehard work ethic and expertise in the work involved — would carry the day. Don’t get me wrong — they’re vastly important qualities, and no entrepreneur will succeed without them.
But I soon discovered what every new business owner will learn eventually: preparing for every setback is impossible. There will always be a surprise waiting in the wings to steal the spotlight at the worst possible moment.
Related: What Is a Good Credit Score and How Do I Get One?
What I learned the hard way
My business did pretty well out of the gate, so I figured financing would be a cinch. I was wrong. I got turned down for an SBA loan within a month of hanging out my shingle. Adding insult to injury, the idea of receiving good-faith credit from vendors was laughable.
Who was I, after all? The world is full of hard-working kids with big ideas, and you can bet that whatever business you’re in, there will be plenty of established companies that can provide the same service faster and better. With no financing or credit to draw on, I was forced to pay for every expense with precious cash out of my own frequently empty pocket.
When I was an employee of a sign company, cash flow seemed to take care of itself. Being a boss was a whole different story. There was no one to take care of it but me, and finding the cash to pay for every expense on the fly became a nightmare. No matter how well the business did, I stayed cash poor. On any given day, I’d have literally hundreds of thousands of dollars owed to me in accounts receivable, but zero in the bank to pay accounts payable.
I’ll never forget the sleepless nights; the stress headaches; the dark fantasies wherein I was unable to make payroll, unable to pay rent. And this is the chief thing they never tell you: a new business owner can be killing it on paper and still spend his nights pacing the floor.
What I did to fix the problem
The vendors who turned me down didn’t dislike me personally. The SBA didn’t deny my loan application because the government disapproves of Idahoans. My difficulties were owed to one thing and one thing only: I had no credit history. I’d been taught from childhood that debt of any kind is an objective evil, and I’d never applied for so much as a credit card.
I’d paid for all my adolescent needs, including automobiles, in cash. The consequences were beautifully ironic: what I’d once done ignorantly but voluntarily, I was now forced to do. Potential lenders had no way of knowing whether I was the type of client who paid his bills. Credit bureaus had no clue I existed.
My career didn’t take off until I faced this difficulty head-on and took deliberate steps toward building flawless personal and business credit history. It wasn’t easy, but it didn’t take long to realize that achieving good credit scores is more a matter of developing good habits than reinventing the wheel; though reliable information was much harder to come by back then, I hustled and did my homework and eventually mastered the topic.
Related: 5 Simple Ways to Improve Your Credit Score and Help Your Business
In today’s world, no fledgling business owner has an excuse for ignorance about the basic building blocks of finance. The internet is a treasure trove of clear, energetic advice regarding how to improve your credit and reputation simultaneously. Alongside the internet, businesses are devoted to helping business owners understand and access their credit data. It’s not much of an exaggeration to say that in the old days, I’d have cut off a finger to access the wonderful services and tools that most of us now take for granted.
The rewards for capitalizing on such blessings are real. Take a look at some of the advantages of an impressive credit score — tell me they don’t coincide with what you already assume are fundamental steps to fruitful entrepreneurialism:
- Borrowing money: A good credit score can help business owners get loans at a lower interest rate with better terms.
- Trade credit: Trade credit allows business owners to grow their inventory without paying immediately, which is ideal for cash flow.
- Lines of credit: Speaking of cash flow, lines of credit can keep the pipes well-lubricated during the crises, major and minor, that ensure that running a business is never boring.
- Insurance: A solid credit score can mean lower insurance rates and better coverage.
- Lease rates: Similarly, business owners with great credit can get far better lease rates on must-haves like equipment, office space and work vehicles.
- Customers: An impressive credit score is essential for building a business-like reputation. Large companies and government entities require a minimum business credit score to award contracts to smaller enterprises.
- Relationships: Business is all about relationships, and a high credit score will go a long way towards convincing future suppliers and business relationships that you are the real deal.
- Payment processing: Strong business scores mean a better discount rate on merchant processing fees.
The list goes on, and the perks evolve, but the message is as steadfast as if written in stone. Without robust credit scores, a small business will never do any heavy lifting, much less hope to survive in one of the most competitive arenas known to humankind.
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