FAQ: How Long Does It Take to Build Business Credit?

by Kieran Daly
May 28, 2024
FAQ: How Long Does It Take to Build Business Credit?

When you’re starting your small business, you’ll likely need to rely on personal assets such as credit cards and savings. But at some point, you may find that you need more financing than your personal credit cards provide.

One way small business owners can expand their financing options is to build their business credit score. But how long does it take to build business credit, and how do you increase your score? Keep reading for the answers.

Why Should You Build Your Business Credit Score?

Having a business credit score can impact your ability to get financing. When lenders consider your loan application, they will look at your business credit score to assess how risky it may be to lend your company money. Just like with a personal credit score, the better your business credit score, the more likely you are to get a small business loan or line of credit with favorable terms and interest rates.

Some of the other reasons for building a business credit score include:

  • Establishing business partnerships: Lenders aren’t the only ones that check your business credit score. Some organizations and businesses may check your credit before entering a partnership.

  • Lowering insurance cost: Some insurance companies may look at your business credit score to determine your premium and rates. Having a good business credit score may help lower your insurance cost.

  • Securing contracts with vendors and suppliers: If you want to create long-term trade lines with a vendor or supplier, they may look at your credit score before deciding to extend credit or establish the terms of a contract. For example, if your small business has a good credit score, they may allow you to have a longer invoice payment period.

  • Building relationships with investors: If you’re looking to grow your company and want to seek funding from investors, such as equity investments, having strong business credit may help. When investors look to put money into a company, they want to make sure it will be successful. Having a good credit score can help attract potential investors.

How Long Does It Take to Build Business Credit?

Business owners can generally start to build their company’s business credit in as little as six months or as much as three years. In general, though, you can expect to need a solid year to build up your business credit score.

The actual time it takes to build credit for your business may vary, as it depends on many factors, such as how long you’ve been in business, your payment and credit history, and how much business debt you have. A new business might take longer to build credit than a company that has been around for a number of years and has established relationships with lenders.

How to Build Business Credit in 6 Steps

Lenders and banks will look at several factors to determine your business’s creditworthiness. If you have a new company or are trying to increase your business’s credit score, knowing what to do can help. Here are six steps you can take to build business credit.

1. Register Your Business

First, officially set up your company, as this establishes it as its own legal entity, allowing you to build its credit history and get a business credit score. 

You may need to register your company with local authorities, depending on the type of business you have and where you’re located. For example, if you’re a sole proprietor, you likely won’t need to register with your state, although you may need a business license. But if you have a limited liability company, then you will likely need to register with the state your company is based in.

You should also get an employer identification number (EIN) from the IRS. In some cases, an EIN is required, such as if you have employees or file certain types of tax returns. This number identifies your company for tax purposes (kind of like a Social Security number for your business) and is also used to set up a business bank account.

2. Get a D-U-N-S Number

Once your business is registered and set up, you can work on getting your credit established. There are three main business credit bureaus: Dun & Bradstreet, Experian, and Equifax. While Experian and Equifax also handle consumer credit, Dun & Bradstreet only focuses on businesses.

To get a business credit score from Dun & Bradstreet you need to get a D-U-N-S number, which you can do for free on their website. You’ll need to fill out an application, including your basic information, business name, business structure, and number of employees.

Once you apply, Dun & Bradstreet may call to confirm your business details. The normal processing time for a D-U-N-S number is 30 business days, but you can pay to have it expedited.

A D-U-N-S number is used by lenders to look up your company profile and is required for federal grants. There is no need to get a business credit number from Experian and Equifax.

3. Open a Business Credit Card Account

You may also want to consider getting a business credit card to quickly build up your business credit profile. In many cases, you can use your personal credit score to qualify for a business card, or you may need to provide a personal guarantee.

Just like making payments on time and having a low credit utilization score can help your personal credit, maintaining a good credit card account can also help increase your business credit score and help you be in good standing with the major business credit bureaus.

4. Maintain a Positive Payment History

Making on-time payments for any company debt is another way to build business credit fast. Paying your debt on time tells potential vendors, lenders, and business partners that you have a track record of being responsible with your money and are good for your word.

Consider setting up auto payments or scheduling payments in advance to make sure that you pay the minimum amount when it is due. This can help you build up your business credit history.

5. Monitor Credit Reports

When building credit, it's also important to monitor your business credit report to ensure that no errors are lowering your score. If you have any loans or business lines of credit, try to get one with a lender who reports to the business credit bureaus. Not all lenders will report to the agencies, so ask who they report to before you take out a loan.

Check regularly with the business credit reporting agencies to make sure your company is in its database and in good standing. And if you see anything inaccurate in your file, make sure to dispute it with the credit agency.

Credit reports are also a good way to see what is hurting your credit score so that you can take actions to improve in those areas.

6. Diversify Your Credit Accounts

One way to keep your credit in good standing is to diversify your credit accounts by having different loan amounts available to you. If done correctly, this can give you a variety of financing options available when you need it. And it may help keep your credit utilization low if you pay back your credit accounts quickly.

To make sure your credit utilization is low, take your total balance and divide it by your credit limit. For example, if you have a credit limit of $100,000, with a total balance of $20,000, your credit utilization is 20%.

Be Patient When Building Your Business Credit Score

Now that you know how long it takes to build business credit, you can start to build up your company’s score by setting up a D-U-N-S number, getting a business credit card, making timely payments, and diversifying your accounts to maintain a low credit utilization score.

Building up your credit score is vital for the long-term financial health of your business, as it gives you access to more financing options and can even potentially lower insurance costs as well as help provide better vendor and supplier terms.

Once you have established business credit, you can apply for flexible financing from Backd. The business line of credit offers up to $750,000 in revolving credit with unlimited terms. And with the working capital advance, you can get up to $2 million with term lengths of up to 16 months and flexible payment options. 

Apply today and find out if you qualify in just 24 hours.

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