10 No-Nonsense Ways to Build Small Business Credit

10 No-Nonsense Ways to Build Small Business Credit

You’re already ahead of the curve if you’re trying to build small business credit. In all, 45 percent of business owners aren’t even aware they have a business score, per Small Business Administration (SBA) research. Seven in ten don’t know where to find information about their score, and eight in ten don’t know how to interpret it.

We’ll walk you through that information on this page, provide some business credit tips, and show you how to build business credit correctly.

Building a Strong Business Credit Profile: Your Path to Financial Trust

Starting the journey to build business credit is a fundamental stride every small business owner should take to lay down the financial bedrock of their new business. Your business credit score is a reflection of your company’s creditworthiness, which can significantly influence your ability to secure a business loan or a line of credit. Unlike your personal credit score, a business credit score is tethered to your business’s financial behavior.

Initiating this journey involves a few important steps. Firstly, it’s crucial to register your business and open a business bank account. This not only helps in keeping your business and personal finances separate but also is a significant step to establishing credit for your business. Acquiring an employer identification number (EIN) is essential as it’s required by the Small Business Administration and helps credit bureaus identify your business.

The cornerstone of building your business credit is to ensure that all business-related transactions, right from credit cards to lines of credit and loans, are conducted through your business bank account. It’s advisable to open a business credit card and use it wisely; timely payments on this card will reflect favorably on your business credit report.

Furthermore, it’s advisable to apply for business loans or a business line of credit that reports your payments to the credit bureaus, specifically the three major business credit bureaus. This, along with ensuring you pay your bills on time, will help in building a good business credit score over time.

Your credit profile is like your business’s financial resume, and having a good credit score can open doors to better financing options. Ensure to monitor your business credit by reviewing your business credit report regularly, rectifying any discrepancies, and keeping an eye on your credit utilization rate to keep your credit in good health.

Lastly, maintaining a business phone number and physical location of your business can further enhance your credit profile. These steps are not exhaustive but are a robust way to establish and build business credit, laying a strong foundation for your business’s financial future. By adhering to these guidelines, you’re not just building credit; you’re building the financial credibility and health that can help your business flourish in the long run.

What is Business Credit?

You’re probably at least a little familiar with your personal credit score. This is a number assigned to you by one of the three main credit bureaus: Equifax, Experian, and TransUnion. All three use the FICO score algorithm to determine an individual’s credit rating. FICO scores can be anything from 300 to 850, Experian reports. If you have a score of 670 or greater, you’re considered to have “good credit.” If you’re at 740 or higher, your credit is “very good.” A score of 800 or more is “excellent.” The average score presently sits at 714 but changes with the times. For instance, it plummeted to just 686 in the wake of the 2008 recession, FICO notes.

When you do things to demonstrate that you’re responsible with money and the risk of non-payment lessens for a potential lender, your score goes up. Your score can be checked under a myriad of situations. For instance, a lender will review it when you apply for a loan. Many service providers, such as power and phone companies, will check your credit before agreeing to bill you after services are rendered. Sometimes prospective employers will even check your credit before hiring you.

Business credit is similar. It’s a measure of how well you’ve historically managed cash, which many entities use to gauge the risk of lending to you or doing business with you.

How Business Credit Works

Equifax and Experian are still major reporting bureaus when moving into business credit reporting. However, the third major entity is Dun & Bradstreet (D&B). The scale used to measure credit is a little different too. 

Whereas your personal credit score will fall between 300 and 850, business credit scores run on a scale of 0 to 100. You’ll have to have a business credit score of at least 80 to be considered “low risk.” Anything from 50 to 79 is considered “medium risk.” If you miss that threshold, you fall into the “high credit risk” bracket.

Most entities concerned about your credit score will look exclusively at your business credit score. However, some will use your personal credit score under certain circumstances, and others will check both, then use the lower of the two to determine your risk.

Things That Impact Your Business Credit Score

  • Payment habits
  • Credit utilization
  • Outstanding balances
  • Total number of trade/ payment experiences
  • Ongoing trends related to the above
  • Public records regarding your credit or debts
  • Business demographics (size of business, years on file, etc.)

Why is it Important to Build Business Credit and Maintain it?

It takes a considerable amount of time to build new business credit. Even established businesses will need 12 to 18 months to improve their scores, according to SBA research. Because of this, building business credit fast is challenging, if not impossible. Instead, you should always work to boost and maintain a high score. It’s unlikely that you’ll be able to correct your score in time if you wait until it’s a determining factor for something you need. A few things that your business credit score impacts are covered below.

Funding Approval

Just 53 percent of businesses that apply for funding receive the amount they need, according to the latest Small Business Credit Survey. A total of 21 percent don’t receive any funding at all. This aligns with SBA data that shows 20 percent of business loans are denied due to business credit. In other words, your score can be the sole determinant of whether you qualify for a loan if you need one.

Trade Credit Access

Many vendors and suppliers are happy to bill you after goods or services are delivered and allow you some time to pay the balance. However, this is usually contingent on whether your business has good credit.

Interest and Cost to Borrow

Even if you manage to qualify for a loan with less-than-ideal credit, your interest rate will be higher. That means you can pay considerably more to borrow than you otherwise would have.

Insurance Premiums

Insurance companies will typically look at your credit to decide if they’ll offer you a policy and to determine your premium. Those with bad credit may be denied or will often pay considerably more.


Businesses that don’t qualify for loans often turn to costly forms of lending and troublesome debts that are hard to pay off. This, paired with increased borrowing and premium costs, can seriously eat into your profit.

Funds Management

When businesses don’t have strong credit, the business owner often pays out of their own pocket or obtains financing in their own name. For instance, 46 percent of small business owners use their personal credit cards for business expenses, according to the SBA. When funds are comingled this way, it’s difficult to split them apart for tax purposes. You may be placing your personal assets at risk too.

10 No-Nonsense Ways to Build Small Business Credit

Now that we’ve covered how business credit works and its impacts, let’s explore how to establish business credit for the first time and how to build and maintain it.

1. Register Your Business

The first step is to decide which business structure is best for your company. Your business structure impacts the laws that apply to your company and how you pay taxes. It also affects your access to funding. Because of this, it’s a good idea to consult with a business attorney if you’re unsure which one to select.

Most businesses will need to register with state and local governments next. In rare circumstances, such as if you intend to operate as a non-profit or are creating an S corp, you’ll also need to file with the IRS.

2. Apply for an Employer Identification Number (EIN)

Most businesses must also apply for an Employer Identification Number (EIN) with the IRS. Per SBA guidance, you should apply for an EIN if your business:

  • Operates as a corporation of partnership
  • Pays employees
  • Files tax returns for employment, excise, or alcohol, tobacco, and firearms
  • Withholds taxes on income, other than wages, paid to a non-resident alien
  • Works with certain types of organizations, such as non-profits and those involving trusts, estates, real estate mortgage investment conduits, farmers’ cooperatives, or plan administrators

While this won’t directly improve your credit score, it’s essential for doing business in many cases and will likely be a requirement if you need a license to operate too.

3. Check in with the Credit Bureaus

Reach out to Experian, Equifax, and Dun & Bradstreet to make sure they have accurate information for your business and get a copy of your credit report from each.

If you haven’t done so, request a D-U-N-S number from D&B. It’s a unique identifier, similar to a social security number or EIN, but issued only by Dun & Bradstreet. It’s linked to the credit score they give you, known as a PAYDEX score. Obtaining a D-U-N-S number is essential when establishing business credit because D&B doesn’t score you until you have one. Many entities, from lenders to vendors and even the government in some cases, won’t work with you unless you have a D-U-N-S number.

Once you’ve run a preliminary check and ensured all information on your credit reports is accurate, revisit your reports once a year to check for errors. You can check back more often when proactively taking steps to boost your credit score, but remember that it typically takes 12-18 months to see improvement. Don’t expect large swings every month.

4. Consider a Business Credit Card

A business credit card can be a great business credit builder. Many rely on your personal credit score rather than your business credit score to determine approval, making it easier for some to qualify. Plus, your credit score will get a boost if you make all your payments on time.

However, the catch is that many business owners don’t keep up with their payments or spend more than 30 percent of their available credit and carry large balances month-to-month. This approach can actually harm your credit and is usually a very costly way to borrow. Plus, many people find themselves in the trap of only paying interest each month and never getting the balance down. If you habitually do this with your personal cards, it might be best to skip opening one for your business when you’re trying to improve your score.

5. Pay Your Creditors Early

Paying on time isn’t enough if you’re trying to build business credit. You must pay early. If you pay on the due date, the best PAYDEX score you can get is 80, as Forbes reports. If you’re triaging your bills and trying to decide which to pay early, targeting the larger balance may be better too. D&B considers the balance when adjusting your score. For instance, a $10,000 invoice paid early will boost your score more than a $1,000 invoice paid early. Equally, your score will take a bigger hit if the $10,000 invoice is paid late than it would have if the $1,000 invoice were paid late.

6. Avoid Judgments and Liens for Your Business

Avoiding judgments and liens may sound like an easy way to build business credit, and it is to some degree, but 54 percent of businesses report having trouble covering operating expenses, and 32 percent say paying debt is difficult, per the latest Small Business Credit Survey. A few tips that may help in this respect include:

  • Avoiding debt
  • Budgeting carefully
  • Managing general contractor relationships well

7. Monitor Your Credit Usage

When trying to build credit, small-business owners often overlook the importance of keeping balances low. Ideally, you want to keep your credit utilization below 30 percent. This means you’re not using more than 30 percent of the funds available on financial tools like credit cards and lines of credit. Spending more than this can make you look like a risky borrower.

Additionally, you should maintain a debt-to-income ratio of no more than 50 percent. If you exceed this, lenders will be concerned that you can’t afford more debt.

Both these things can negatively impact your overall score too. Keep an eye on your usage and debt ratios and make changes if they start to climb.

8. Borrow from Lenders that Report to Credit Bureaus

Many assume that all payments are reported to credit bureaus, but this isn’t always true. Some lenders don’t report at all, while others only report when something goes wrong. To make sure you’re getting credit-boosting power from every payment you make, ensure any lender you borrow from reports your timely payments.

9. Establish Trade Lines with Your Suppliers

Suppliers who offer you a line of credit or allow you to pay after goods are delivered can help you in two huge ways. First, anyone you have financial transactions with can report you to credit bureaus like D&B. So, if you have a good relationship with yours, you can simply ask them to report your history and get an automatic boost.

Additionally, vendor financing options don’t usually appear on reports as lines of credit. Although people who check your reports can see the invoices owed, any “borrowed” funds don’t count toward your credit utilization. This can make you look like a more appealing borrower when applying for a loan.

10. Build Small Business Credit with Invoice Factoring

Invoice factoring may be the best way to build business credit because it offers many benefits. For instance, you can use your factoring cash to pay your invoices on time or early and leverage factoring to stabilize cash flow, so it’s easier to manage your money. Plus, you don’t always need a credit check every time you factor. This is different from a loan and is a crucial distinction because credit checks can hurt your score for some time. Lastly, factoring provides debt-free funding. It’s an advance on your B2B invoices, and the balance is cleared when your client pays their invoice, so there’s nothing to pay back. That keeps your credit utilization and debt ratio lower and makes managing your cash easier.

If it sounds like invoice factoring can help solve some of the issues holding you back from having the business credit score you deserve, contact us for a complimentary rate quote

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