The United States Treasury Department issued new guidance in November 2021 for the $10 billion State Small Business Credit Initiative to provide more loans and relief to business owners during the pandemic.
Credit and cash flow are vital for a new business, now more than ever, but careful financial credit management is equally important.
Keep Business and Personal Banking Separate
According to the Small Business Administration, even sole proprietorships that aren’t required legally to have separate bank accounts should have business accounts. Keeping personal and business finances separate makes business bookkeeping easier and helps ensure that suppliers, partners, and related bills get paid on time. Separate bank accounts also help owners get a better financial picture of their businesses faster than if they had to sort transactions according to whether they were private or business-related.
A business bank account makes it easy to analyze finances. The ability to judge a business’ finances at a glance can be important if things aren’t going well, but also if the business is thriving. An owner can’t make sound financial decisions without a clear picture of a company’s payables and receivables. Separate banking and credit records also simplify record-keeping and can shave hours off the time it takes to prepare tax documents.
Build Credit for the Future
New businesses don’t have an established credit history, but the moment a business opens its doors, even the doors are virtual ones, a business can start building credit. According to the Small Business Administration, a new company can build credit by prompt payment for utilities and rental contracts.
Individual credit lines with partners and suppliers can help establish credit. Beyond that, one of the best and fastest ways to build credit as a new business owner and guarantee a better cash flow is to get a business credit card. Owners shouldn’t use personal credit cards for business expenses, payroll, or anything company-related in the same way they shouldn’t use a personal checking account. A business credit card provides ready-made payment documentation with monthly invoices and payment records. Muddying a business card’s statements with private purchases, or using a personal card to pay business expenses, can cause bookkeeping mistakes and incorrect assumptions about the company’s financial health.
Watch for Loan and Funding Opportunities
A business credit card can save the day when expenditures outstrip cash on hand, but large purchases or expenses cost less with low-interest loans. When a business needs a substantial amount of money, banks and other lenders can provide the necessary funding for less. Businesses should watch banks and other lenders for lower interest rates to secure funding for needs they anticipate in the future.
This type of financial planning and credit management will let businesses take advantage of lower interest rates. When businesses know what kind of credit they’ll need in the short term, getting a loan sooner rather than later is a better choice. They won’t be stuck in a money crisis and have to apply for a loan when rates are high.
