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When discussing the "evils" of credit, it's important not to confuse business credit with personal credit, which is where real credit abuse problem exists in America.
In business, credit can increase your bottom line. Wereas, in your private life, credit becomes a problem because people use it to live beyond their means or to "Keep up with the Jones' ."
In business credit means every thing when starting or expanding a business, especially in an equipment dependant industry. And if you're in an area where the work is seasonal, in Winter and Spring, good credit is king. (So you can take advantage of the 20-30% off prepay deals on plants, stone etc.)
In this business protect your credit rating at all costs. From day one, don't take on debt you're not sure you can repay and NEVER pay late. Have any credit card or installment payments automatically taken from your checking account and have an overdraft on that. In the frantic world of a small businessman it's easy to overlook a bill. But it will cost you dearly later and the bankers don't really care about your sob stories. You're just a credit score number. Get over it.
Eventually, your credit score will increase and you will call the shots with the bankers and creditors. Then, when you need that skidsteer or new dump to take you to the next step you can get it. And you can negotiate the best rates.
Personally, I don't like going to my local bank for loans. Their dumb ass formulas and high overhead mean they don't really understand the world of small business and they're overpriced. When I wanted to buy $85K worth of new Bobcats a few years ago my banks offered 8% and I leaned on my Bobcat salesman to get me 0% for 4 years (AFTER I negotiated the price). The same with my trucks. But without a good credit (853 rating) I'd be dead in the water and at their mercy. And one of the reasons I'm in business is that I don't want to be at anyone's mercy. So as long as my credit is good, I'm in charge.
Also, this may be controversial, but I'm not afraid to use credit cards instead of cash for purchases or as a quick line of credit.
OF COURSE, DON'T DO THIS IF YOU KNOW YOU'RE FINANCIALLY IRRESPONSIBLE OR DON'T HAVE A REAL GRASP ON YOUR BUSINESS' NUMBERS!
First off, when I use my cards I automatically get 1-5% CASH back. That amounted to almost $3K cash in my pocket last year. And between the 30 days to pay from the supplier and the 25 day grace period from the card. You get almost 2 months before you pay.important in the Spring. So you're essentially getting paid to use a line of credit. And when you make the payment on time, you're increasing your credit score.
Also, if I see a need for a piece of equipment that cost $10-$30K and I can't smooze a low interest rate from the dealer, I'll use one of the convenience checks that has a FIXED rate of 3% for as long as I need to pay it off. And I can write it on the spot and not waste hours of my time pleading with a banker so I can have the privelege of his SECURED 8.5% loan. Essentially, I have an abundant unsecured line of credit available for 3% through the credit card company whenever I need it....and if I want, I can even transfer those balances over to a 0% card for a year or longer.
I know this makes alot of people nervous. But IF you're financially disciplined, meaning, A) You only make purchases that will truly help your bottom line and not because you like new shiny things and; B) You've calculated the payments into your yearly budget and are sure of on time payments... then you can get the equipment, land, whatever you need when you need it and save thousands each year in interest payments. In fact, last year I got far more back in "cash rewards" than I paid in interest ."
Again, not for everyone. But it works well for me.
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