Lending Library

It’s common for companies growing faster than their current income to seek outside capital to keep up their momentum. An under-capitalized business will find it difficult to make the leap required to scale and expand.

A clear first step to lining up outside capital is to determine whether equity investment or debt financing (or a combination of the two) might be the best route for your business.

What is equity financing?

When you own a business concept or company, there’s a subjective value attached to it called equity. The equity of any type of asset—whether intellectual or physical—is the value someone is willing to pay for it, minus its liabilities. That could mean the value of an entity today (measured in time and money invested) versus its value in the future (measured by comparable growth).

Once the owner and investor determine the “valuation” of the asset, the owner can then sell parts of the equity to raise capital. 

Types of equity financing.

There are a variety of methods to raise equity capital, including seed capital, angel capital, and managed venture capital. Here’s a closer look at each of these popular equity financing solutions. 

Seed capital

Seed capital typically comes from private investors (often personal sources like friends and family members) during the startup phase of a company’s development. It only qualifies as equity financing if the investor receives a piece of the company in return for its investment.

Angel capital

Angel capital comes from angel investors—typically high-wealth individuals who invest in businesses (startups included). In exchange for angel capital, an investor will require a piece of the companies in which they invest.

Managed venture capital.

Venture capital funds come from managed, pooled investments. This type of funding is usually only available to startups with the potential for rapid growth and high returns. Again, you’ll have to give up a share of your business in exchange for the investment dollars you receive. 

What is debt financing?

Debt financing is a source of business funding where a lender provides to the business an agreed-upon amount of money that is to be repaid over a period of time, in addition to any associated fees or interest.

Types of equity financing.

There are a variety of methods to raise equity capital, including seed capital, angel capital, and managed venture capital. Here’s a closer look at each of these popular equity financing solutions. 

Seed capital

Seed capital typically comes from private investors (often personal sources like friends and family members) during the startup phase of a company’s development. It only qualifies as equity financing if the investor receives a piece of the company in return for its investment.

Angel capital

Angel capital comes from angel investors—typically high-wealth individuals who invest in businesses (startups included). In exchange for angel capital, an investor will require a piece of the companies in which they invest.

Managed venture capital.

Venture capital funds come from managed, pooled investments. This type of funding is usually only available to startups with the potential for rapid growth and high returns. Again, you’ll have to give up a share of your business in exchange for the investment dollars you receive. 

Key differences between debt financing and equity financing

Understanding the key differences between debt financing and equity financing can help you make an informed decision tailored to your business needs.

1. Ownership and Control

• Debt Financing: You retain full ownership and control of your business. Lenders have no say in business decisions.
• Equity Financing: You give up a portion of ownership in your business. Investors may have input on business decisions and strategic direction.

2. Repayment Obligation

• Debt Financing: Requires repayment of the borrowed amount, plus interest and fees, according to the lender’s terms.
• Equity Financing: No obligation to repay the investment. Investors expect returns in the form of dividends or an increase in the company’s value.

3. Profit Sharing

• Debt Financing: Profits remain with the business owner. There is no requirement to share profits with lenders.
• Equity Financing: Profits need to be shared with investors based on their equity stake. This can reduce the total profit that goes back to the business.

4. Credit Impact

• Debt Financing: Can help build business credit if the lender reports to credit agencies. Poor credit might make it difficult to qualify.
• Equity Financing: Doesn’t impact business credit directly. Credit history is generally not a barrier to obtaining funds.

5. Business Risk

• Debt Financing: Poses a risk if the business is unable to meet repayment obligations, potentially leading to loss of collateral or personal assets if a personal guarantee is involved.
• Equity Financing: Reduces financial risk since there’s no debt to repay, but you risk losing a measure of control and having to share future profits.

Considering these differences can clarify which financing option aligns best with your business goals and current financial situation.

When to choose equity vs. debt financing.

Every business has to choose for itself whether equity financing or debt financing makes the most sense, and many companies opt for a mixture of both types of funding. There are risks with either option you choose. 

If your business closes and it still owes outstanding debts, you may still have to repay those loans plus interest. The same isn’t true with equity financing. On the other hand, if you sell your business for a sizable profit, paying off shareholders could be much more expensive than the cost of paying off a business loan. 

It’s up to you to weigh the pros and cons of each type of financing and figure out which solutions make the most sense for your business. 

Lendio’s mission is to empower your small business by making small business loans simple by providing options, speed, and trust. Whether you are looking for an acquisition loan or a startup loan, Lendio offers hundreds of different loan products from a variety of lenders. Find out which business loan is best for you.

Understanding how credit scores are calculated can sometimes feel like unraveling a complex puzzle. However, breaking down the key components gives a clearer picture of how these scores are derived and what they signify. A credit score is essentially a numerical representation of your creditworthiness, influenced by various financial behaviors and patterns. This guide will delve into the factors that impact your credit score and explain how each element contributes to your overall rating.

What is a credit score?

A credit score is a numerical representation of your creditworthiness. It is calculated based on your borrowing and payment history and indicates to lenders how likely you are to repay your debts on time.

It’s also important to understand that you don’t have just one credit score—different lenders and credit reporting agencies use multiple credit scores. While most scoring models assess similar factors such as payment history, amounts owed, length of credit history, new credit, and types of credit, they may weigh these factors slightly differently, resulting in variations in your score.

How is a credit score calculated?

The most common credit score you’ll hear of is FICO or the Fair Isaac Corporation. FICO determines the creditworthiness of an individual with a number, typically between 300 and 850. This FICO credit score is the lending industry standard for making credit-related decisions.

FICO scores are calculated from information pulled from the three major credit bureaus in the United States: Experian, TransUnion, and Equifax. These bureaus, in turn, gather information from lenders like credit card companies, student loan lenders, and banks.

FICO credit scores are divided into several ranges that help lenders assess an individual's credit risk. Here's a breakdown of the different ranges:

• Very Poor (300-579)
• Fair (580-669)
• Good (670-739)
• Very Good (740-799)
• Exceptional (800-850)

Your personal credit score has a large impact on your ability to get a business loan. Most lenders will have a minimum credit score requirement in addition to other eligibility criteria.

FICO determines your credit score based on five factors, but each is weighted differently. Your repayment history and overall credit utilization are the main components of your score.

5 components of your FICO credit score.

1. Payment history

FICO says that payment history determines 35% of your credit score, making this factor the most important aspect of your credit reports. The guiding wisdom here is that past repayment behavior is the best way to determine your ability to pay off new debts.

“Both revolving credit (i.e., credit cards) and installment loans (i.e., mortgage) are included in payment history calculations, although installment loans take a bit more precedence over revolving credit,” financial expert Rob Kaufman of FICO writes. “That’s why one of the best ways to improve or maintain a good score is to make consistent, on-time payments.”

You can boost this portion of your score, and, therefore, greatly boost your FICO credit score overall, by paying down existing debts. One of the fastest ways to push your score skyward is to pay off a debt like a credit card completely. Even ensuring your payments are timely can have an impact, although paying above the minimum will compound your efforts to improve your score.

2. Amounts owed

The next biggest factor FICO uses in determining your credit score is your “credit utilization.” As the term suggests, this metric compares the amount of credit you are using to the credit available to you. This factor accounts for 30% of your FICO score.

Basically, your credit utilization is the percentage of debt you carry. If your credit burden is high, it will lead lenders to believe that much of your monthly income is going toward debt repayments.

“Credit score formulas ‘see’ borrowers who constantly reach or exceed their credit limit as a potential risk,” Kaufman explained.Generally, a “good” credit utilization ratio is 30% or less. Improving this aspect of your credit score can require some strategic thinking. If you pay off a credit card, you might want to keep that account open so the open credit line pushes the ratio in your favor. Similarly, asking for credit limit increases can better your burden percentage.

3. Length of credit history

The number of years you have been using credit has an impact on your score. FICO says it makes up 15% of your score, although this can be a bigger factor if your credit history is very short.

“Newer credit users could have a more difficult time achieving a high score than those who have a credit history,” Kaufman said, “since those with a longer credit history have more data on which to base their payment history.”

It’s smart to always have some lines of credit open, even if you aren’t using them. This approach is especially true if you, or your children, are young adults, although you want to ensure you can responsibly handle credit cards.

4. Credit mix

Credit mix accounts for 10% of your FICO score, so it is a relatively minor factor unless your credit history is limited. Generally, lenders like to see several different kinds of lines of credit on your report, like credit cards, student loans, auto loans, and mortgages.

“Credit mix is not a crucial factor in determining your FICO score unless there’s very little other information from which to base a score,” Kaufman stated.

If you have multiple lines of credit open, you probably don’t have to worry about this factor. Instead, focus on changing your credit utilization ratio or improving your repayment history.

5. New credit

The final 10% of your FICO score is determined by how many lines of credit you have opened recently. This aspect is why people say hard checks on your credit score can actually hurt your standing.

“Opening several new credit accounts in a short period of time can signify greater risk—especially for borrowers with a short credit history,” said Kaufman.

When you apply for a new credit card, loan, or lease, lenders look at your credit history. This check itself shows up on your credit report, even if you were denied the line of credit.

Inquiries can remain on your credit report for 2 years, but FICO only includes credit checks made in the last 12 months in determining scores. “Soft” checks on your credit, like credit monitoring services, are not included.

What doesn't affect your credit score?

Several factors contribute to your credit score, but some things don't impact it:

• Personal information: Age, race, ethnicity, nationality, sex, and marital status don't influence your credit score.
• Soft inquiries: Background checks by potential employers or when you check your own credit report don't affect your score.
• Salary and employment: Salary, employment history, and occupation are not considered when calculating your credit score.
• Location and rental payments: These are not factors unless reported to and recorded by credit bureaus.

Lenders may use this information to evaluate credit applications, but it doesn't directly affect your numerical credit rating.

Established online marketplaces like Etsy are another way to strengthen your online presence. Etsy can help you market your business to a broader customer base and increase your online sales. We’ll walk you through everything you need to know to set up a successful Etsy shop— from who benefits to a step-by-step walkthrough on how to open a shop and what steps you can take to help your business stand out from the competition.

Before you set up your Etsy shop.

Before starting any business venture, you should perform market research. Etsy is no different. You can take a few simple steps before you begin that will help inform your Etsy shop setup to save you time and maximize the impact of your efforts.

Peruse the site’s navigation.

Spend some time looking through Etsy’s menus. Look at the different categories and subcategories. How easy is it for the casual user to find your product category? Does your product clearly fit into one of the categories? If not, where would your product best fit?

Get a sense of the competition.

Imagine that you are your target customer. Enter the keywords you think they’d search to find your product. How many results come up? How is your product different from what’s already offered? This step will give you a sense of how steep the competition is and what you’ll need to do to stand out from the crowd (more on that later).

How to set up an Etsy shop.

1. Register for an Etsy account.

2. Create a shop.

3. Set your shop preferences.

4. Choose your Etsy shop name.

5. Create listings

6. Choose how you want to accept payments.

7. Set up billing information.

8. Open your shop.

9. Market, sell, tweak, repeat.

How to set up an Etsy shop.

Setting up an Etsy shop is an easy 8-step process. Grab yourself a fresh cup of coffee or a glass of water, and let’s do this. Your shop can be up and running before you even need a refill.

1. Register for an Etsy account.

If you already have an Etsy account, you can use your email login. You can also choose to log in using your Facebook or Google accounts. If you want to separate your personal browsing from your business selling account, you can set up a new account using your business email. Registering for an Etsy account is totally free. 

To set up an account, click the “Register” button at the top of the site. It will prompt you to enter your email and first name and create a password. As with any online platform, you’ll want to review Etsy’s Terms of Use and Privacy Policy. Once you click “Register,” Etsy will email you to confirm your account. Click the link and voila, you’re up and running with your very own Etsy account. 

With your brand-spanking-new Etsy account, you can:

• Add items to your favorites
• Use Etsy’s on-site messaging system
• Set up your shop
• Post in the community

Log in to your account, and we’re ready to move on to the next step. 

2. Create a shop.

Once you’re logged in, you want to click on “Sell on Etsy.” Again, it’s on the top of the home page. You should find it just to the left of the “Register” button. Stuck? You can also use this link, and it’ll take you right there. 

Click on the “Open your Etsy shop” button. Boom. We’re onto the next step. Oh, and if you skipped step one, Etsy will prompt you to create an account or log in here. 

3. Set your shop preferences.

Next, you will be prompted to enter your preferences for language, country, currency, and your time commitment to operating the shop:

• Shop language: The default language you will use to describe your items. If you want to add translations into other languages, you’ll be able to make that adjustment after you open your shop. 
• Shop country: What country you’re based in. 
• Shop currency: The currency you will use to price your listings. Generally speaking, it’s recommended that you use the same currency as your bank currency, as currency conversion fees may apply if your bank’s currency is different from the currency used in your shop. 
• Time commitment: Is this a full-time job or a part-time job? Etsy requests this detail for informational purposes. Your answer will not affect the setup of your shop. 

4. Choose your Etsy shop name.

Choosing your shop name may look different for new businesses than for established businesses.

Naming an Etsy shop for an established business.

Since your business already has a name, you’ll want to follow it as closely as possible. If that username is already in use or doesn’t meet the Etsy shop name requirements, it’s advisable to use the same username as your other social media handles. Maintaining consistency across multiple platforms makes it easier for your customers to find you and follow you from platform to platform in addition to adhering to brand standards. 

Naming an Etsy shop for a new business.

If this is your first time naming your business, we recommend you consult our post on “How to Name Your Small Business.” It will walk you through considerations like checking if the trademark is already in use and choosing a name that makes your business easy to find. 

As a rule, the best business (and Etsy shop) names are easy to remember, unique, and tell your customers what you sell. 

Requirements for naming an Etsy shop.

Whether you’re launching an Etsy shop for a new or existing business, Etsy shop names must meet the following requirements:

• 4-20 characters long
• No spaces, punctuation, or special characters
• No profanity
• Not already in use by an existing Etsy member
• Does not infringe on another’s trademark

If you’re still at a loss for what to name your new shop, Etsy has provided some helpful tips for choosing a shop name. 

5. Create listings

Now that you have a shop, it’s time to fill it. Add product listings to your shop by adding photos, creating the listing description and name, completing inventory information, etc. For each listing, you will need to follow these steps:

Add photos and videos.

Click “Add a photo” to upload photos from your computer. You can upload photos individually, or you can save time by selecting multiple photos so all the photos for a listing upload at once. Hit “Choose” to upload the photos. Etsy recommends that you upload at least 5 photos per listing with a variety of angles. 

Photos need to be at least 2,000 pixels wide, but they can vary in height. You don’t have to worry about reducing the size of the photos, either. Larger photos give shoppers the ability to zoom in, allowing them to achieve a more tactile-feeling online shopping experience. Once photos have been uploaded, you can easily rearrange them by clicking and dragging them into your preferred order. 

You can also upload a video showcasing specific features or details of your products. Videos can be 5–16 seconds long. Once uploaded, they will not contain any audio, so be sure your video works as a visual-only feature.

Choose the thumbnail photo.

Now that you have all these stellar photos, you need to choose which one you want customers to see first. This is the thumbnail photo. You can set the thumbnail photo by clicking and dragging it into the number 1 slot. 

To adjust what customers see in the thumbnail preview, click “Adjust thumbnail” below your first photo. This will allow you to change the square’s position in the photo or zoom in. Once you’ve chosen your new thumbnail orientation, click “Save.”

Add listing details.

Listing details are how Etsy users find products. Without accurate and complete listing details, trying to find your listing will be like looking for a needle in a haystack. Remember that there are 2.5 million sellers on Etsy. Filling out the listing details will help shoppers find you. 

For each listing, you’ll need to include the following:

• Title: Give your item a descriptive title. Including the most searchable words at the beginning will increase the likelihood that your product will show up in appropriate searches. 
• About the listing: These dropdowns will help you to categorize your item. Because you select from predetermined categories, completing this section is a matter of a few clicks. In this section, you can mark attributes like “handmade,” “vintage,” etc. 
• Listing categories: Choose the categories to which your listing belongs.  Instead of combing through the list and picking every category that could tenuously apply, take a more discerning approach. Consider where buyers might look to find your specific item, and choose the categories that will increase their chances of finding it easily and swiftly. 
• Add attributes (optional): Attributes include characteristics like color, occasion, or holiday. This is another way Etsy makes it simpler for shoppers to find your items more easily.
• Choose a renewal option: An Etsy listing will stay live on the site for 4 months at a time. Listings automatically renew after that time as a default setting. If you want to control when your listings renew, you can select the “Manual” setting.

Describe your listing.

The next step is to describe your listing. This description is the meat and potatoes of what shoppers will read when they view your listing. You’ll need to indicate whether it’s a digital or physical item. Then you can add a description of the item, its dimensions (if applicable), the production process, etc. 

You’ll want to take the time to include information about materials, size, how it was made, unique features, etc. to give buyers as much information as possible. It may also save you from having to answer many repeat questions. 

You can also include the following optional information:

• Your production partner (if applicable)
• Whether or not the item can be customized
• Which section of your shop the listing falls into if your shop has sections
• Tags (Etsy recommends using all 13 tags available to you)
• Materials
• Price per unit (applies to sellers in the EU)
• Main features (for sellers in Germany)

Add inventory and pricing.

Decide how much your items will cost, and let Etsy know how many you have to sell. In this section, you can also select preferences or include the following: 

• Shop tax rates
• SKUs
• Variations (if you offer different sizes and colors, you can include up to 2 variations per listing)
• Personalization

Add files (for digital items).

If shoppers can digitally download your items once purchased, be sure to add the files to your Etsy shop. This reduces your manual labor and increases the speed at which buyers will receive the items, a winning combination for exceptional customer experience. 

Set up shipping.

Choose how you want to ship your physical items. You have options!

Marketing

If you’re running an Etsy Ads campaign, you can choose to include your listing in that campaign. If you are running a campaign, listings added from the “Sell on Etsy” app will be automatically added to the campaign. If you want to choose which listings you advertise, you can find what you need to control those settings here. 

Publish or save your listing.

Your listing won’t be saved until you click “Save as Draft” or “Publish.” Be sure to save your listing so you don’t lose the progress you’ve made and have to enter it all over again. 

6. Choose how you want to accept payments.

If you’re in an eligible country, you’ll receive payments through Etsy Payments. Etsy Payments allows customers several payment options while simplifying and consolidating payments in your seller account. 

If you’re in a country ineligible for Etsy payments, you can receive payments via PayPal. 

7. Set up billing information.

Depending on your country, you will need a credit card to open your shop. Sellers in certain countries will be asked to keep a card on file as a means of identity verification. The card should be a: 

• Visa
• Mastercard
• American Express
• Discover
• Carte Bleue (France)

8. Open your shop.

Once you’ve completed these steps, click “Open Your Shop.” You can always add listings and make updates or changes to your shop after it’s open.

9. Market, sell, tweak, repeat.

Congrats! Your Etsy shop is up and running. Now you can dedicate your efforts toward making your listings and your shop stand out. Track how your listings perform. If they don’t get traction at first, don’t lose hope. Trial and error is a part of business, and you’ll likely have to do some testing before you find the best strategy, especially if you’re in a competitive category. Etsy Ads may be helpful to get your product seen. Tools like eRank can help you learn more about your listings’ search performance. And of course, if you have an established audience, don’t forget to let them know you’re on Etsy!

Etsy fees

Etsy charges a $0.20 fee for each listing (regardless of whether the item sells). When you sell an item, Etsy collects a 5% transaction fee. They also charge payment processing fees, and you may encounter some additional seller fees. To learn more, you can review Etsy’s full fee and payments policy.

Every business will face an emergency at some point. Building a cash reserve will help your small business to weather the storm. 

What is a cash reserve?

Cash reserves are funds set aside to cover unexpected expenses or financial emergencies. It serves as a crucial safety net for small businesses.

How much money should go into a cash reserve?

Step one for building a cash reserve for your business is understanding how much money you need. Look at your finances and determine your average monthly cash outlay. Based on your business’s needs, set a goal to save enough cash to withstand whatever timeline you believe is necessary. 

At the bare minimum, you should have at least 3 months’ worth of savings in your reserve at any given time. Ideally, you would save up to 6 months’ worth.

Review a list of non-negotiable expenses each month. These costs include your rent, employee pay, and vendor agreements. If you want to save even more, you can look for negotiable expenses (or expenses that you could cut if your business closed) and save for those as well. These costs can include marketing, materials, and inventory.  

To calculate your ideal business cash reserve amount, understand that you should expect zero revenue during an emergency closure. Your business will need to rely on your reserves entirely. For example, a hurricane could shut down your business for a month and require repairs. During this window, there may be no way for your business to earn a profit, and you would need to eat into whatever cash reserves you had.

You never want to face a situation where your business will have to close for 3–6 months, but having enough cash available to sustain your company through that downtime will give you some peace of mind.

Treat your cash reserve like a fixed expense.

You likely have several fixed expenses each month—these costs are recurring and do not fluctuate monthly. Common fixed expenses for small businesses include rent, insurance, and car payments for fleet vehicles. If you are serious about setting up a cash reserve, treat it as an additional fixed expense. 

Move your savings into a separate account, or create a label within your accounting system for the cash reserve. This way, you will allocate funds to the cash reserve automatically before you look at your more dynamic costs or calculate your monthly profits.

You don’t need to set aside much each month (even a few hundred dollars monthly will add up over a year). However, the sooner you have your reserve built, the better off your business will be if you need to close suddenly for an extended period.

Create a guide for when you can use your reserve.

Whether you are a small business owner with a few employees or a growing brand with a large team, develop a policy for when it’s acceptable to pull from your cash reserve. These guidelines can be a simple written agreement that you keep in your accounting documents or part of your company’s financial bylaws. 

This guide is meant to prevent abuse from you and your team—you don’t want to pull from your cash reserve for small problems and repairs, diminishing the amount you have saved. It’s entirely possible to eat away at your reserve if you don’t have a plan in place for when to use it. 

Consider creating guidelines to approve the use of these funds. For example, you could require both co-owners to sign off on using funds or require board or investor approval. These steps help create safety nets within your company to protect your funds until you really need them.

Pay back your reserve if you use it.

If you dipped into your cash reserve during the pandemic or needed it for other emergency expenses, don’t forget to pay it back afterward. Cash reserves are meant to be used from time to time, but they are also meant to be repaid when used. 

If you’ve followed the advice above, you’ll have established your cash reserve as a fixed expense so it will begin replenishing quickly. However, if you drained a large portion of it, you might want to increase your monthly repayment amount or even consider adding a lump sum to the reserve.

Any cash reserve is better than no cash reserve. 

Don’t get overwhelmed with the idea of needing several months of savings immediately. If you feel like creating a cash reserve is an impossible task, then you’re more likely to give up in a few months. 

Know that your reserve is going to start small and that it’s okay. Any money you have set aside will help. It doesn’t matter how much or how little you put into your cash reserves—over time, that money will grow. Eventually, you’ll have a safety net to keep your business thriving through any crisis.

Maybe your company is at a crossroads. Or perhaps you’re considering what strategies to implement for the year ahead. Maybe you want to evaluate how your current systems are working or whether you should go ahead with a new product launch. 

There’s no doubt that these can be overwhelming issues and decisions for business owners to tackle. The good news is that there’s a helpful tool you can use to facilitate your decision-making process: a SWOT analysis. 

You may have heard the term before and written it off as too complicated or not a fit for your small business. But, in reality, a SWOT analysis is an assessment tool that’s simple to use and provides a big-picture view of your company's overall status. You can use it to set goals, determine risks, plan, and identify critical issues that impact your business. 

Wondering how to get started? Let’s dig into why a SWOT analysis should be in your business toolkit and how you can conduct one.  

What is a SWOT analysis?

A SWOT analysis can and should be performed by businesses of all sizes. Whether you're just starting out or well-established in your industry, you can benefit from performing a SWOT analysis.

SWOT is an acronym for:

• S: Strengths
• W: Weaknesses
• O: Opportunities
• T: Threats

You’ll identify topics under each letter of the acronym to grasp the internal and external forces that can impact the success and well-being of your company.

Developed in the late 1960s, SWOT is a well-respected and highly-practiced business analysis process. Often included as part of an overall business plan, it can also be used throughout a company's lifespan for strategic planning, to prepare for significant changes, and to support business growth. 

Why Perform a SWOT Analysis?

When you're faced with a strategic decision or looking for ways to improve your business, conducting a SWOT analysis is an essential place to start. Depending on your industry and your activities, a SWOT analysis can be completed every 6 months to one year or as needed to address critical decisions and shifts in your industry.

Companies may want to complete a SWOT analysis for many different reasons, and there are numerous benefits associated with performing one. A regular SWOT analysis can help you: 

• Jumpstart strategic planning for the upcoming year
• Understand your competitors and industry
• Improve operations
• Discover new opportunities for growth in your market
• Identify and adjust for risks
• Reevaluate current strategies that may not be working
• Prepare for expansion or new product rollouts
• Brace for and proactively respond to emerging threats
• Decide where to focus your resources

Needless to say, that handy little acronym can reveal a lot about your business. 

How to do a SWOT analysis.

Before you get to work on your own SWOT analysis, let's first take a closer look at the elements you’re analyzing.

In a SWOT analysis, there are two types of factors: internal and external. Generally speaking, the internal ones are elements you have control over—like your resources, people, and operations. In contrast, external elements are out of your control and would be there with or without your business—like your industry, competition, and market.

Here’s how that plays out in your SWOT analysis: 

• Internal factors: Strengths and weaknesses
• External factors: Opportunities and threats

Now, let’s break down each of the four pieces of the acronym. 

Strengths

What makes your company strong? What are you doing right? These are some of the queries you'll want to answer when considering your company's strengths. As the name implies, strengths focus on the elements of the company where you excel and stand out from the competition. 

EXAMPLE: Our high-quality customer service is unmatched in our industry. 

Weaknesses

Weaknesses are where your company falls short. It can sting a little to pick apart all of the things that you aren’t doing right, but it’s important to figure out where you could improve and areas where your competitors are performing better. After all, these weaknesses stand in the way of you achieving your business goals. 

EXAMPLE: We struggle with retention and have high staff turnover. 

Opportunities

Opportunities are where you tap into possibilities that could help your company grow. Think about what gaps in the market you could fill in or what trends you could take advantage of. Don’t limit yourself here—this piece is all about dreaming big. 

EXAMPLE: Our customers have been requesting a new product that we could easily launch. 

Threats

Threats include any outside forces that could negatively impact your business. Is your company at risk? It’s not a fun question to answer, but it’s an important one. Threats are elements that could harm your company and could range from changes to regulations to an economic downturn. 

EXAMPLE: We have a lot of new competitors cropping up, and the market is becoming saturated. 

You won’t just identify one topic for each letter of the acronym—this is all about thinking critically and generating as many ideas as possible. Aim to come up with at least 3 answers for each letter of your SWOT analysis. 

SWOT analysis example

Strengths

• Strong Brand Recognition: Our brand is well-known and respected in the industry, which builds customer trust and loyalty.
• High-Quality Products: We consistently produce high-quality products that meet or exceed customer expectations.
• Skilled Workforce: Our team consists of highly trained professionals who bring a diverse range of skills and expertise.

Weaknesses

• Limited Market Presence: Our presence is concentrated in a few key markets, leaving room for growth in other regions.
• High Operational Costs: Maintaining our high standards of quality increases our operational costs, impacting profitability.
• Outdated Technology: Some of our production processes rely on outdated technology, which can slow down efficiency.

Opportunities

• Market Expansion: Emerging markets present an opportunity to expand our reach and increase market share.
• Innovative Technologies: Investing in new technologies can streamline operations and reduce costs.
• Sustainability Trends: Growing consumer interest in sustainability provides a chance to develop eco-friendly products and enhance our brand image.

Threats

• Intense Competition: Increasing competition from both established brands and new entrants poses a continuous threat.
• Economic Fluctuations: Unpredictable economic conditions can impact consumer spending and our sales.
• Regulatory Changes: New regulations in our industry could require costly adjustments to our business practices.

How to execute a SWOT analysis for your small business.

You’re probably picking up on the fact that a SWOT analysis doesn’t need to be overly complicated, and you don't have to be a big corporation with many different departments to conduct one.

In fact, even solo entrepreneurs will find this to be a useful tool. Here are a few more tips to help you get started on the right foot: 

• Determine Your Reasoning: As mentioned previously, a SWOT analysis can be performed yearly, every 6 months, or as needed. It can be used for a specific area of your business, as part of a product rollout or business plan, or to help decision-making. Understand why you want to do one right now, as that’s an important context to keep in mind as you move forward.
  
• Gather Your Team: The more input and perspective you have, the better. Decide who you need to include to help you complete as candid of a SWOT analysis as possible. Typically, SWOT analyses are held as brainstorming sessions with key personnel within your company. They may include project managers, department heads, owners, and other staff. If you run your business alone, ask for input from those close to you or who are somewhat involved in your company, such as friends, family, a mentor, or your accountant.
  
• Create Your SWOT Framework: A typical SWOT analysis is displayed as a 2-by-2 grid. Each SWOT element (strengths, weaknesses, opportunities, and threats) is represented in clearly labeled quadrants. You can easily create the grid in Word or PowerPoint, but you can also use SWOT software, free templates, and generator options available online. Ones you may be interested in include Canva, SmartSheet, Creatly, Lucidchart, and SWOT.
  
• Solicit Honest Feedback: Remember, you don’t have to go it alone. Ask your staff members questions and write down all their responses to get as well-rounded of perspective as possible.
  
• Analyze the Results: Your SWOT analysis doesn’t do any good if you don’t take action on what you uncover. It’s up to you to use that information to determine your business strategy moving forward. Create an action plan with deadlines to address issues over the short- and long-term. We’ll talk about this more in the next section. 

How to use a SWOT analysis.

Once you've completed the above steps, it's time to analyze your findings. While a SWOT analysis offers a useful review of what's working in your company and what isn't, its real value lies in combining the results.  

The process of combining elements of a SWOT analysis is known as matching, and it can help you look at the information in new ways and reveal other findings. Need some inspiration? You can combine elements in the following ways:

• Strengths + Opportunities: Can determine areas where you can use your strengths to seize upon opportunities. 
• Weakness + Threats: Can identify the weaknesses you should work on to avoid potential threats.
• Weakness + Opportunities: Can show you where to improve your weaknesses so you can take advantage of opportunities.
• Strengths + Threats: Can indicate where you can use your strengths to diminish or remove threats. 

Another way to look at your findings is through something called converting. Here you'll want to analyze the data you've collected on your weaknesses and threats to see if you can convert them into positives.

Once you've accumulated all of your information, you can now create an action plan that you can apply to the appropriate level of your business. 

Get started with your own SWOT analysis.

Whether you want a once-a-year overhaul of your business plan or need to decide if it's the right time to expand, a SWOT analysis is where you'll want to begin. 

As an integral part of the decision-making process, this helpful tool can provide you with a comprehensive look at your business and help you determine your next steps. That way, you can make business decisions with more confidence—and less confusion. 

What’s the difference between cash flow and profit? 

As a business owner, these two terms can feel interchangeable. But the truth is, they’re far from it—and knowing when to prioritize one over the other can help you make better strategic decisions in that moment.

What is cash flow?

Whether you’re just starting a business or have an established brand, you’ll feel the effects of cash flow similarly. Cash flow is simply the movement of liquid money (cash) in and out of your business at a specific point in time.

When you execute a business transaction and receive money, that’s an inflow of cash. When you spend money on inventory, bills, or other expenses, that’s an outflow of cash. As you track the movement (flow) of cash in and out of your business, you’ll find that you are either operating:

If you have positive cash flow, you have enough cash to cover your financial obligations. If you’re operating with negative cash flow, you are not bringing in enough cash to cover your current expenses and will likely need additional business financing to continue running at your current pace.

What is profit?

Profit refers to the remaining revenue after all expenses are paid. If you have a positive value after subtracting total expenses from total revenue, then you’re profitable. If you have a negative value, you’re spending more than you’re making over that timeframe and are operating with a loss.

Profit can be used in many ways. You can distribute profit to other owners or shareholders, invest it back into the business, or save it in a reserve fund in case of emergency.

For many small businesses, profitability fluctuates throughout the year. Take toy and hobby retailers, for example, which arguably see the bulk of their sales in the final quarter of each year. This imbalance creates cyclical ebbs and flows of profitability, which can be misleading without the proper context.

What’s the difference between profit and cash flow?

Cash flow and profit are just two of many financial metrics business owners and investors use to assess the health of a company. Both measurements have their own advantages and disadvantages, and it’s up to you to understand how to use each to make better strategic decisions.

However, the difference between profit and cash flow can be tricky to grasp because they both relate to the balance of money within your business. Complicating the matter further, businesses can actually operate with a positive cash flow without being profitable—and may be profitable with a negative cash flow.

Timing is the subtle difference that needs to be considered when comparing cash flow to profit.

Cash flow focuses on the past, looking at the actual money that has come in or left your business at a specific point in time. Profit looks at the past, present, and future of your business and includes liabilities like accounts receivables and long-term debt, which are expected expenses or future cash.

For example, if you sell an item on credit, you don’t actually have the cash on hand—it’s an account receivable, which still needs to be collected. However, it’s considered revenue because the liability of payment has passed on to your customer, and it is used to measure profitability.

On the other hand, cash flow will only measure money that comes in and leaves your business. As a result, it won’t recognize that transaction until the cash is received from the credit purchase.

When to prioritize cash flow vs. profit.

Cash flow and profit both have their purposes as financial metrics, and business owners would be wise to measure and analyze each ongoingly and for different scenarios.  

For example, if you want to have an overarching view of your business and its long-term viability, profit can shed more insight than cash flow because it takes a holistic view of your income and financial obligations. However, if you want to see a snapshot of your financial efficiencies at a specific point in time, cash flow may give you more perspective because it’s focused more on your day-to-day operations.

Cash flow or profit: What’s more important?

Cash flow and profit are both important, and business owners and investors may focus on each at different times and for specific reasons. Determining whether profit or cash flow is more important will be based on your unique situation.

Understanding the relationship between cash flow and profit can help you identify when to look at one or the other. This insight alone will put you in a better position to make the right decisions to guide your business forward.

As more American consumers utilize next-generation payment methods like touchless transactions or smartphone payments, there’s a general sense that we’re headed toward a cashless world. However, there are still plenty of small businesses that operate exclusively in cash—and will continue to do so for years to come.

If you’re trying to decide whether you should accept credit card payments, it’s never been easier. While it might not be the clear choice for your business right now, you should at least be aware of the credit card process in case you want to accept these types of payments in the future.The process to accept credit card payments will vary based on what sort of business you own, how you currently accept payments, and what type of credit card processing system you choose. This guide will help you to decide whether you should take advantage of the estimated 441 million open credit card accounts in the United States.

Why accept credit cards?

Banks, credit card companies, and financial media outlets will tell you that you should definitely accept credit cards as a small business. There is a fair amount of data—and probably your own lived experience—to back up the notion that businesses that accept credit cards are poised to make more money.

Think about your own shopping—there have probably been situations where you had no cash on you or not enough cash to buy all the items you wanted. Furthermore, obtaining cash itself can often be inconvenient, costly, or impossible.  

Years of studies and polls back up the claim that credit card users make more purchases and spend more per transaction. The average credit card transaction was $95 in 2013, compared to the average $39 value of a cash transaction, according to a study by San Francisco Fed.

Another economic phenomenon surrounding credit card use is so-called “payment coupling.” Payment coupling is the association between purchase decision-making and the actual separation of a customer from their money. A landmark 2008 study found that credit cards ease the “painful” part of shopping, i.e., seeing your wallet or bank account get reduced.

“The conceptual underpinning of our research is that payment modes differ in transparency or the vividness with which individuals can feel the outflow of money, with cash being the most transparent payment mode,” the American Psychological Association study posits. “We argue that the more transparent the payment outflow, the greater the aversion to spending or higher the ‘pain of paying,’ leading to less transparent payment modes such as credit cards and gift cards (vs. cash) being more easily spent or treated as play or ‘monopoly money.’ Further, to the extent that the transparency of paying underlies differences in spending behavior, altering the salience of parting with money should attenuate the difference across payment modes.”

Why you might not be able to accept credit cards.

There can be a few reasons why it could be very difficult—or even impossible—to accept credit cards. Unless you want to use a manual credit card imprinter, you need a reliable internet connection to accept credit cards. Your brick-and-mortar store might also be located where cash is common—retailers in urban or very rural areas might serve customers who are accustomed to carrying around a good amount of cash.

Why you might not want to accept credit cards.

The biggest reason not to accept credit card payments, for many business owners, is the small fee charged to conduct every credit card transaction. These fees add up—which is why some businesses are still cash-only, especially in areas where customers carry a lot of cash. It’s also possible that your business is set in its ways and doesn’t have a culture of adapting to new practices.

How credit card processing works.

When a customer uses a credit card to make a purchase at your business, the transaction initiates a complex process involving several parties. First, the credit card terminal collects the card information and sends it to your merchant bank's processor. The processor then forwards this data to the cardholder's issuing bank via the appropriate credit card network (such as Visa or MasterCard) to request transaction authorization.

The issuing bank checks the cardholder's account for sufficient funds and any potential fraud alerts before approving or declining the transaction. This approval (or denial) is then sent back through the network to your merchant processor and finally to your terminal or point-of-sale system, where the result is displayed. If the transaction is approved, the funds are later transferred from the cardholder's account to your merchant account, minus any processing fees.

This whole process, while intricate, happens almost instantaneously, allowing for a seamless transaction experience for both the business and the customer.

How can I accept credit card payments for my small business?

To start accepting credit card payments for your small business, you'll need to follow a few essential steps:

• Open a merchant account: A merchant account is a type of bank account that allows your business to accept credit and debit card transactions. You can open a merchant account through most banks or through a payment processing company.
• Choose a credit card processing system: There are various types available, ranging from traditional countertop credit card terminals to mobile and online payment processors. The right system for you will depend on the nature of your business, the volume of transactions you process, and your budget.
• Set up the necessary equipment: This may involve installing software, setting up hardware, or both. If you're not tech-savvy, many providers offer support services to help with setup.
• Educate yourself and your staff on how to use the system efficiently and securely: This includes understanding how to process transactions, issue refunds, and handle any potential disputes. Ensuring that your team is knowledgeable about these processes will enhance the customer experience and help your business run smoothly.

If you decide to accept credit card payments, there are a few ways to do so. You’ll want to think about how your business operates and is structured. Shopping with a credit card is common these days because there are so many ways to conduct credit card transactions—in recent years, revenue-minded payment processors have been aggressive in making the process as simple as possible. With a little bit of planning and research, you can find a credit card payment system that works for you.

Types of businesses that can accept credit cards.

Virtually any type of business can accept credit cards, from retail stores and restaurants to service providers and online businesses. Here are a few examples:

• Retail stores: Whether it's a clothing store, a bookstore, or a hardware shop, retail businesses benefit greatly from accepting credit cards due to the ease and security it offers to customers.
• Restaurants and cafés: With the rise of dining out culture, accepting credit cards can streamline the payment process and improve the dining experience for guests.
• Service providers: Professionals like consultants, freelancers, and contractors can accept credit cards, making it easier to receive payments for services rendered, especially for larger projects.
• E-commerce sites: Online businesses are perhaps the most in need of accepting credit card payments, as it allows them to accept transactions from customers worldwide.
• Healthcare practices: Dental, medical, and other healthcare services are increasingly accepting credit card payments for treatments and consultations, providing flexibility and convenience for patients.
• Subscription-based businesses: For businesses that offer products or services on a subscription basis, credit card payments allow for recurring billing, ensuring a steady cash flow.

No matter the industry, accepting credit cards can help businesses increase sales, improve cash flow, and provide a better customer experience.

Different ways businesses accept credit cards.

Depending on how you operate your business, there are probably several options for accepting credit cards. If you run an online-only business, for example, you might find that credit cards are the easiest way to accept payment. You might have some choice here, too—many brick-and-mortar businesses have switched to mobile payment providers instead of the traditional credit card processors.

In-person credit card payments.

If you want to set up traditional in-person credit card transactions like you would find at a typical restaurant or retailer, you need to buy a point-of-sale (POS) system. This set of hardware and software will enable you to accept credit cards. These systems include credit card readers that communicate to your merchant account.

Mobile payments

Mobile payments, also called payment service providers (PSP), require less investment than a standard merchant account. Common examples include Square and Stripe. Many PSPs now combine a merchant account with a POS system, which is why they’ve become very popular among small businesses. As PSPs disrupt the POS field, you should look at your options’ terms and fees to make the best choice. Typically, PSPs are easy to use and inexpensive to set up, but a traditional merchant account system might be more negotiable and cheaper to use as your business ages and expands.

Online credit card payments.

For e-commerce operations, accepting credit cards is fundamental—there’s likely no other easy way to accept payment. Fortunately, however, no hardware is required. The website you use for your store, like Etsy, might also enable easy-to-use credit card payments. Many PSPs and e-commerce gateways, like PayPal or Shopify, offer apps or widgets that you can put onto a website. Many even allow you to sell items through social media.

Over-the-phone payments.

Accepting credit card payments over the phone is a convenient option for businesses that conduct sales remotely or want to provide an additional payment method to their customers. This method typically requires a virtual terminal, which allows you to enter credit card information manually into an online system. Virtual terminals are offered by most merchant service providers and payment gateways, and they can be accessed through a computer or mobile device with an internet connection. This payment option is particularly useful for service providers, such as consultants or businesses that take orders via phone. It's essential to ensure that all over-the-phone transactions comply with PCI DSS (Payment Card Industry Data Security Standard) guidelines to protect your customers' credit card information and reduce the risk of fraud.

Benefits of accepting credit card payments.

Accepting credit card payments can significantly benefit your small business by enhancing the customer experience and expanding your customer base. Here are some key advantages:

• Increased sales: Studies have shown that customers tend to spend more when using credit cards compared to cash. This can lead to higher average transaction values and increased overall sales.
• Improved cash flow: Credit card transactions are processed quickly, often resulting in funds being available faster than with checks. This can improve your business's cash flow, allowing you to reinvest in your operations or settle debts more swiftly.
• Customer convenience: By offering more payment options, you cater to a wider range of customer preferences, making it easier for them to purchase your products or services. This convenience can improve customer satisfaction and loyalty.
• Competitive edge: In today’s digital age, businesses that do not accept credit cards may be at a disadvantage. Accepting credit cards can provide a competitive edge by aligning with consumer habits and expectations.
• Global market reach: Credit card acceptance is crucial for online businesses that aim to reach customers beyond their immediate geographic area. It enables businesses to easily accept payments from customers worldwide.
• Enhanced security: Credit card payments often come with security measures that can reduce the risk of fraud. Payment processors and merchants use encryption and other technologies to protect cardholder data.
• Streamlined accounting processes: Electronic transactions can simplify bookkeeping, making it easier to track sales and manage finances. Many payment processors integrate with accounting software, automating the reconciliation process.

By accepting credit card payments, small businesses can not only keep up with the evolving landscape of consumer preferences but also leverage these benefits to grow and thrive in a competitive market environment.

How much does it cost to accept a credit card?

The cost of accepting credit card payments can vary substantially based on several factors, including your merchant service provider, the type of transactions you process (in-person vs. online), your sales volume, and the nature of your business. Generally, the costs can be broken down into three main categories:

• Processing fees: These are charged each time a customer uses a credit card at your business. They typically consist of a percentage of the sale, usually between 1.5% to 3.5%, plus a fixed fee per transaction, often ranging from $0.10 to $0.30.
• Monthly fees: Some merchant account providers or payment processors charge a monthly fee for using their service. This can range from $10 to $30 per month, although some providers offer plans with no monthly fees.
• Equipment costs: If you need to purchase or lease equipment, such as a POS system or credit card terminals, there will be additional costs. These can range from a one-time fee of a few hundred dollars to ongoing leasing fees.

For businesses operating online, there may be additional fees for using e-commerce platforms or payment gateways, which can include setup fees, monthly subscription fees, and additional transaction fees.

It's essential to carefully research and compare the terms and fees from different providers to find the solution that best fits your business's needs and budget. Remember, the cheapest option upfront may not always be the most cost-effective in the long term, especially as your business grows and your transaction volume increases.

What's the cheapest way to accept credit cards?

Finding the most cost-effective way to accept credit cards requires a careful consideration of your business's specific needs, transaction volumes, and the types of customers you serve. Generally, the cheapest way to accept credit cards will vary based on the scale of your operations and the average transaction size. However, for many small businesses, payment service providers (PSPs) like Square, PayPal, or Stripe offer competitive rates with low upfront costs, making them an attractive option for businesses just starting to accept credit cards. These platforms typically charge a flat percentage plus a small per-transaction fee, with no long-term contracts or monthly fees, which can be ideal for businesses with fluctuating sales volumes.

For businesses with higher sales volumes or larger average transactions, negotiating a merchant account with a bank or dedicated payment processor might be more economical in the long run. These accounts often come with a monthly fee but offer lower transaction rates, which could result in significant savings over time.

Additionally, leveraging technology such as mobile payment solutions can also reduce costs by eliminating the need for expensive point-of-sale hardware. Ultimately, the cheapest way to accept credit cards is the one that aligns with your business model, provides the flexibility your operation requires, and offers the most value for the fees you pay.

The bottom line.

Choosing the right approach to accept credit card payments is critical for the success of your small business. It’s about finding the perfect balance between cost, convenience, and customer experience. Whether you opt for a traditional merchant account, a mobile payment service provider, or an online payment gateway, each has its own set of advantages tailored to different business needs and customer preferences. Remember that the goal is not just to facilitate transactions but to enhance the overall customer experience, thereby fostering loyalty and driving sales. Keep in mind the future scalability of your business as well, choosing a system that can grow with you. Ultimately, investing in the right credit card processing system is an investment in your business’s future.

A personal credit score determines the level of risk that comes with lending to you. You use it to apply for credit cards and other financing options to cover major purchases. A business credit score works similarly, except instead of evaluating your risk as an individual, financial institutions evaluate your business’s viability.

Like personal credit, business credit takes time to build. While your equity may be able to boost your business credit, the overall goal is to keep your personal and professional finances separate. This guide will review the factors that go into your business credit score range and what a healthy number looks like.

What is a business credit score?

A business credit score is a numeric expression that represents the creditworthiness of a company. It is used by lenders, suppliers, and other financial institutions to evaluate the likelihood that a business will repay its debts. This score typically ranges from 0 to 100 for most scoring models, with higher numbers indicating better creditworthiness.

Unlike personal credit scores, business credit scores take into account factors such as the company's payment history, credit utilization rate, length of credit history, public records including bankruptcies, and the company’s size and industry. A healthy business credit score is crucial for securing financing, favorable loan terms, and establishing trust with suppliers and vendors.

Business credit score benefits.

Having a high business credit score can unlock numerous advantages for your business that go beyond simply qualifying for loans or credit lines. These include:

• Better financing terms: A strong business credit score can help you secure lower interest rates and more favorable repayment terms on loans and lines of credit.
• Increased borrowing power: With a higher business credit score, you may be able to access larger amounts of capital for major purchases or expansions.
• Improved supplier relationships: Many suppliers and vendors use business credit scores to determine whether or not they want to extend credit to a company. A strong business credit score can help establish trust and open up more opportunities for trade credit.
• Separation of personal and professional finances: By building a solid business credit score, you can keep your personal assets separate from your business assets, protecting yourself in the event of any financial issues.
• Insurance policy rates could be lower: A good business credit score may influence your insurance premiums, potentially leading to lower rates on your business insurance policies.

Overall, investing time and effort into building and maintaining a solid business credit score positions your company for better financial health and long-term success.

How a business credit score works.

A business credit score, much like a personal credit score, is a reflection of a company's financial responsibility and creditworthiness, but with a focus on the business's operations. When a business applies for loans or credit lines, lenders and suppliers will examine this score to decide how risky it is to offer credit. 

This score is calculated based on several factors, including the timeliness of bill payments, the amount of available credit used by the business, the length of the business's credit history, any legal filings such as liens or bankruptcies, and the company's financial stability. Essentially, this score is a numeric summary of a business’s financial history and current financial position, aimed at predicting the likelihood of the business fulfilling its financial obligations.

What goes into your business credit score?

Multiple factors contribute to your business credit score—some are in your control while others aren’t. A few of these factors include:

• Your payment history: If you have paid off your loans steadily over time without missing any payments, you will have built a strong business credit score.
• Credit history and age: How long has your business had financial liabilities? A new business will have a much lower credit score than a company that has maintained good credit for the better part of a decade. 
• Number of accounts: How many accounts do you have? How many are active with existing debits or credits? 
• Credit utilization: What percentage of allowed credit do you have? Have you reached the maximum limits of your business credit cards, or do they still have available credit for you to use? 
• Types of credit: Credit bureaus look for multiple funding sources, otherwise called a credit mix. 
• Recent credit inquiries: Have lenders recently requested information about your business? How many and how long ago?  

Many of these factors are also used for personal credit scores. However, they take on a new meaning when applied to a business. 

For example, the severity of the debt you take on also depends on the size of your business and your expected profits. Your credit can also be impacted by vendors that send unpaid invoices to collections or report overdue bills that you miss. 

Essentially, almost any financial transaction you make as a business owner can contribute to your credit score, which is why it is so important to maintain good, organized bookkeeping.

What is a good business credit score?

The main difference between a personal and business credit score is the number range. While a personal credit score ranges from 300–850, business credit scores are typically developed on a scale of 0–100. Additionally, there are 3 main business credit score bureaus, all of which use this range. These are Dun & Bradstreet (D&B), Equifax, and Experian.    

As a rule of thumb, the higher the score, the better. If you have a business credit score above 75, then you have exceptional business credit and shouldn’t have trouble securing funding. 

A score of 50–75 is considered fair and you should be able to get funding, though maybe at a higher interest rate or more limited terms. Finally, anything below 50 is considered poor credit and a high-risk account.Each of the three major credit bureaus collects and measures different information to calculate your business credit score.

How to improve your business credit score.

Improving your business credit score is a strategic process that requires consistent effort over time. Here are practical steps you can take to enhance your company's financial standing:

• Pay your bills on time or early: Establish a track record of timely payments, as payment history heavily influences your credit score.
• Reduce credit utilization: Aim to use a smaller portion of your available credit to show lenders you're not overly reliant on credit.
• Update your business information: Ensure your business information is accurate and up to date with all credit bureaus. Inaccuracies can negatively affect your score.
• Monitor your business credit report: Regularly review your credit reports from the major credit bureaus to catch and dispute any inaccuracies or fraudulent activities early.
• Establish trade lines with suppliers and vendors: Use trade credit to your advantage by establishing and maintaining positive payment histories with multiple suppliers and vendors.
• Limit credit inquiries: Only apply for new credit when necessary, as too many inquiries in a short time can indicate risk to lenders and negatively impact your score.
• Build a diverse credit mix: Having a mix of credit types, such as a business credit card, a line of credit, and trade credit, can positively affect your score.

By taking these steps, you can improve your business credit score, which can lead to better loan terms, increased funding opportunities, and a stronger financial foundation for your business.

Check your business credit score.

You can find sample business credit score reports for each of these credit bureaus so you can determine which ones you want to use. The scores should stay relatively equal across each report. 

To access your credit scores, visit the websites of these credit bureaus. You can pay from $40 at Experian up to $100 at Equifax for your report.

Understanding your business credit score range can help you secure funding for startup expenses and company expansion. You can be more aggressive in negotiations with lenders when you have a good score and can take steps to improve it before taking out a loan if you have a poor one. Don’t be afraid of your credit score—use it to make sound financial decisions for your business!