For small businesses looking to grow, getting access to the right financing is crucial. Having good business credit makes it easier to qualify for loans and other forms of financing so you can easily access the funds you need to manage emergencies, consolidate debt, pay employees, or invest in new equipment. Building and maintaining strong business credit can take time, but the benefits are well worth the effort. This article covers the steps you can take to build strong business credit and grow your business.

How Business Credit Works

Just as your personal credit score represents your creditworthiness based on how responsibly you use loans and credit cards, manage debt, and make payments, your business credit score involves the same considerations for business accounts. Credit bureaus collect information from creditors and other sources and use it to calculate your business credit score. This score, which typically ranges from 0 to 100, helps lenders assess your business’s creditworthiness and determine whether to approve your business loan application.

Your business lenders report your payments and account information to business credit bureaus like Dun & Bradstreet, Equifax, and Experian. Each bureau produces a credit report and uses a scoring model to assign you a credit score based on your ability to manage debt effectively.

These credit bureaus make your business credit score and report available to lenders who use the information to assess your creditworthiness for a loan or similar financial product.

Business Credit vs Personal Credit

While business credit and personal credit are similar in many ways, there are some key differences worth noting.

• Identification numbers: Business credit is tied to your business’s Employer Identification Number (EIN), while personal credit is tied to your Social Security Number (SSN).
• Score ranges: While personal credit scores typically range from 300 to 850, business credit scores range from 0 to 100.
• Contributing factors: Factors like your payment history (to creditors), the age of your oldest credit account, and credit utilization are important contributors to business and personal credit. Scoring models for business credit may also consider the age and size of the company, industry risks, and established trade lines.
• Access to credit reports: Consumer credit reports are accessible to the subject of the report, as well as to lenders, landlords, and other parties providing services to the individual. However, business credit reports are public, and anyone can request access to them.
• Lender preferences: Lenders may vary in their approach to credit review based on factors such as the age of your business and established credit lines. If you already have business credit accounts and have built business credit, your personal credit may not matter as much. However, for newer business owners, your personal credit will usually determine your creditworthiness. Some business lenders may consider both personal and business credit as part of their evaluation process.

Why Build Business Credit?

While some business owners can get by on the strength of their personal credit, there are good reasons to work on building business credit. You don’t want upheaval in your personal finances to affect your business growth and financing prospects. Additionally, there are some benefits to having a good business credit score, including:

• More financing options: Good business credit can make it easier to qualify for a variety of financing options, including loans, lines of credit, and business credit cards.
• Lower interest rates: With good business credit, you may qualify for lower interest rates on loans and other forms of financing, saving your business money over time.
• Higher rate of approval: Lenders are more likely to approve loan applications from businesses with good credit histories.
• Prepare for future growth: Building business credit takes time, so it’s important to start early, even if you don’t currently need financing. Establishing good credit now will make it easier to access funds when your business is ready to grow.

7 Steps to Build Business Credit

Building business credit can take time, but the rewards are significant. Once you establish a line of credit for your business, it’s a simple matter of making timely payments and ensuring that you borrow only what you can repay. Get started with these steps.

1. Register Your Business

Register your business with the appropriate state and local authorities. This will establish your business as a separate legal entity and make it easier to build credit in your business’s name. At this time, you should also make sure you have an EIN; if you don’t you can apply for one through IRS.

2. Open a Business Bank Account

Open a business bank account to separate your business and personal finances. This will help you keep track of your business’s income and expenses and make it easier to establish credit with vendors and lenders.

3. Apply for DUNS

A Dun & Bradstreet DUNS Number (short for Data Universal Numbering System) is a nine-digit unique identifier for businesses. While you don’t always need a DUNS number to own or operate a business, you may be asked for one when you apply for a business loan or credit. You can get a DUNS number for free through a simple application process on dnb.com.

4. Establish Trade Credit

Working with vendors or suppliers offers you the opportunity to establish a trade line where you make payments days or weeks after you’ve received your products. Trade credit can help improve your business credit score if your vendors report payments to credit bureaus.

You can build a trade line with any vendor, from your stationery supplier to any manufacturer that you purchase from.

5. Open a Business Credit Card

A business credit card can be an easy way to help build credit for your business. You don’t always need established business credit to get a credit card; instead, issuers can use your personal credit to evaluate your creditworthiness. Make timely payments and keep your credit utilization low to start building a good credit score.

6. Apply for Business Financing

Obtaining a small business loan or line of credit can help further establish your business’s credit history. Be sure to choose a lender that reports your payment history to the major credit bureaus. Once you’ve received your loan, it’s important to make payments in full and on time to ensure your payment history remains positive.

7. Monitor Your Credit with Bureaus

Regularly monitor your business credit reports with the major credit bureaus, including Dun & Bradstreet, Experian, and Equifax. Check your reports for errors and dispute any inaccuracies that could be hurting your credit score.

Tips to Maintain Good Business Credit

After building good business credit, small business owners should take steps to maintain their solid credit score. Here are tips to maintain a healthy business credit score.

Continue a Positive Payment History

Continuing to consistently make on-time payments to your loan, credit card, or other form of financing helps establish a positive payment history. Your payment history is an important factor in your business credit score, so maintaining a positive record can help improve your business credit.

Build Solid Connections with Vendors and Suppliers

Timely payments and strong communication with vendor sand suppliers can lead to positive reporting to credit bureaus, further improving your business credit profile. In addition, better connections could lead to more favorable trade terms.

Diversify Your Business Credit Mix

Having a diverse mix of credit accounts, such as trade credit, business loans, and business credit cards, can demonstrate your ability to manage various types of credit responsibly. This mix of account types can contribute positively to your business credit score.

Maintain a Low Credit Utilization

Aim to keep your credit utilization ratio low, using no more than 30% of your available credit across all of your accounts. A high credit utilization can indicate financial strain and may negatively impact your credit score.

FAQs for Building Business Credit

How do I get credit for my new business?

To get credit for your new business, you’ll need to establish a positive credit history. Start by registering your business, opening a business bank account, and applying for a DUNS number. Then, establish trade credit with vendors and suppliers, open a business credit card, and apply for business financing. Applying for a business credit card is an easy first step since issuers will likely evaluate your application based on your personal credit.

How soon can I build business credit?

You can start building business credit as soon as you register your business and open a business bank account. However, it’s difficult to say how long it will take to achieve a good credit score. The most important thing is to keep business debt under control and ensure that your lenders are reporting your payments accurately and on time.

How do you build business credit fast?

Building business credit takes time. Making timely payments and keeping a low credit utilization ratio can help you build the foundation for a good credit score, but there’s no quick fix to significantly accelerate the process. One key aspect of quickly achieving good credit is keeping negative marks off your credit report. Late payments, defaults, bankruptcy, etc., can decimate your progress and be tough to recover from. Avoiding these financial pitfalls, managing debt responsibly, and tracking your credit reports for any mistakes can all go a long way toward building good business credit.