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Budgeting, Small Business

Capital Budgeting Benefiting Business Credit

By Amanda Winstead | Thursday April 28th, 2022

business credit

When you secure a business loan or line of credit, hopefully, you’ve already mapped out a plan for how to use the capital to strengthen and scale your business efficiently. If you haven’t developed that plan yet, don’t move forward with spending a dime until you do.

Far too often do businesses tank because they’ve taken out loans or lines of credit they can’t pay back or used irresponsibly. The last thing you want to do is ruin your business credit, limit your financing options because of that, and stall your business growth.

Instead, it’s best to implement a strategy like capital budgeting to help you make wise financial decisions that address your most pressing business needs and build your business credit.

Before we dive into how capital budgeting can benefit your business credit and help grow your company, let’s discuss what a business credit score is and why it’s so important.

What is a Business Credit Score?

Just as a personal credit score determines your creditworthiness regarding personal borrowing, a business credit score decides your company’s creditworthiness.

Your business credit score is important because the better it is, the better your borrowing terms are, the more borrowing power you have, and you’re more able to separate business and personal finances.

Ultimately, a solid business credit score allows you to make more significant long-term investments in your company like new equipment, more employees, or product line expansion. So, it’s an absolute must to pay attention to your business credit score and continually improve it.

One of the main ways to keep your business credit score in good standing is to make all loan payments on time or pay off your loans altogether. Capital budgeting can help you do this and grow your business generally. Let’s talk about this in more detail.

How Capital Budgeting Can Help You Grow Your Business

Experts define capital budgeting as “a process of evaluating the costs and benefits of potential large-scale projects for your business.” In other words, it’s a complete financial analysis of a large project that helps determine if that project is a good idea financially, operationally, and for the overall longevity of your business.

Also, capital budgeting can help define a plan for loan repayment so that you’re able to keep your business credit score in good standing. Here’s more on how capital budgeting can help you repay loans and boost your business.

Prepare for using capital and paying it back

First, capital budgeting can help you adequately prepare for using capital responsibly. You can:

  • Determine how much funding is needed to see the project to fruition
  • Choose the most cost-effective methods for investing in big projects
  • Map out how you’ll allocate funds during projects
  • Determine the ROI for large projects
  • Plan out project details in-depth

Capital budgeting also enables you to define a plan for paying back capital. You need your business credit score to be the best it can be to get the financing you need. However, don’t take out more than you can pay off. Capital budgeting ensures you’ve got a plan in place for paying back any amounts you’ve borrowed.

Develop a long term vision for your business

Capital budgeting also helps you develop a long-term vision for your business and think deeply about the big projects you take on. All of your large projects should help you run your operation more efficiently, grow your business in some way, or enable innovation.

For example, technology continues to be an integral part of any business. If you want to remain relevant and profitable in the future, you must invest in technical expenses. Capital budgeting can help you make informed decisions about technology investments and ensure you’re putting money into the most productive tech tools for your operation.

Conclusion

Capital budgeting benefits your business credit and helps you feel confident in your investment decisions. You must always consider the financial details of any large project to ensure you’re investing in your business’s future rather than detracting from it.