How to Build Business Credit: 7 Tips to Increase Your Score

by Kieran Daly
June 14, 2023
How to Build Business Credit: 7 Tips to Increase Your Score

When building up a small business, your personal finances and your business expenses might blur. But as you grow your company, it’s important to separate the two.

One way to do that is to establish a business credit file and build up a credit history for your business. Not only will this help separate your personal and business finances, but it can also help your company long term if, in the future, you plan to look for funding solutions to expand your business. Unsure how to build business credit? We've got you covered. 

What Is Business Credit?

Business credit allows companies to qualify for different types of financing, such as small business loans. It can also help you navigate partnerships with vendors and other business-to-business sellers and help you negotiate with other companies.

Business credit is the ability of a company to borrow funds. In other words, it's a measure for lenders to know how creditworthy your business is. Similar to how a personal credit score is used by banks to determine if you’ll pay them back for a loan, a business credit score tells lenders how reliable your business is. 

Learning how to build business credit is critical to the success of your small business. If you don’t have a good business credit report, you could struggle to get business financing options with competitive interest rates or to get a business line of credit. Having bad credit can also hurt your relationship with potential vendors.

While lenders will check a business credit score, if you’re a small business owner they may also check your personal credit score. While you should focus on your business's credit history, don’t neglect your personal credit score, especially if you’re planning to apply for a small business loan.

Why Do You Need Business Credit?

Small business owners need business credit to secure financing and get deals with vendors and other businesses. But companies don’t have to tell you if they’ll be checking your business credit score. You should keep track of your business credit report and build up your business credit profile in order to get the best financing rates possible.

According to the Federal Reserve’s latest Small Business Credit Survey, small businesses seeking traditional financing were less likely to get the funding they applied for in 2022 compared to previous years. Increasing your business credit score can help increase your chances of getting approved, whether you go with a traditional or an online lender. 

How Long Does It Take to Build Up Good Business Credit?

Establishing business credit can take one to three years, and the time it takes will vary between businesses. Many factors can determine how quickly you can build up credit, such as your business’s cash flow, your personal credit score, and your business structure.

Newer startups may find it quicker to establish good credit, while a business with bad credit might need to spend a few extra years paying back its loans on time. While your credit limit might be low when you first start out, you can build up your score and increase your company’s credit over time.

The 7 Steps of How to Build Business Credit

Building up credit takes time and can require a bit of patience. Not sure how to build business credit? If you want to build credit and get better terms from lenders, consider following these steps:

1. Register Your Business

One of the things to do when building business credit is to make sure your business is registered. What that entails will depend on the type of business you have and your business structure. You may need a license to operate or to set up a specific type of business structure. There are different types of business structures to consider, including:

  • Sole proprietor: This is when the business is owned by a single owner. Creditors are generally allowed to seize the owner’s personal assets if the business fails.

  • Limited partnership: This type of business entity consists of multiple owners, with those designated as general partners considered personally liable.

  • Limited liability partnership: All owners of the company have some liability protection in case of negligence or misconduct of the other business owners. However, not all owners are completely protected from personal liability, as it depends on the state where the business is established.

  • Limited liability company (LLC): With an LLC, the business owner’s personal assets are protected from any claims against the business. It’s essentially a separate legal entity. However, you’ll need to pay extra fees, which vary by state, and keep your company in good standing with the local government.

  • Corporation: When a company becomes a corporation, the shareholders are not liable for the company’s debt. But in the event of a bankruptcy or default, creditors can step in and take control of the company, even changing the leadership.

2. Get an EIN

When you start a new business, you’ll need an employer identification number, or EIN. This is like a Social Security number for your business. It helps keep your business finances distinct from your personal finances, especially if you have a sole proprietorship. The government uses this number to identify the business when you pay taxes. This number is also vital if you open a business bank account or apply for a business license.

3. Get a DUNS number 

There are three major business credit reporting agencies: Dun & Bradstreet, Equifax, and Experian. To get a business score from Dun & Bradstreet, you’ll need to request a free Data Universal Numbering System (DUNS) number from the company on their website.

Lenders will use the DUNS number to look up your small business credit profile. This number includes information on the financial health of your company, including a delinquency predictor score and a failure score. According to the IRS, you will also need to have a DUNS number if you apply for any federal grants or cooperative agreements.

4. Apply for a Business Credit Card

If you’re trying to build your credit, it’s a good idea to get a business credit card. While you should have a business bank account, having an account at a bank does not usually impact your credit score. Having a credit card and making payments on time can help you increase your credit score.

A business credit card can help you build your relationship with a banking partner, as well as allow you to pay for operations during periods of low turnover. With Backd’s business line of credit, for example, you can draw funds whenever you want.

One thing to keep in mind is that not all credit card companies report payment history for businesses. So if you’re trying to build up your small businesses’ credit, make sure your lender reports borrowers' payments.

5. Build Your Relationship with Vendors

Vendors and suppliers often give out trade credit. This allows you to pay a few days or weeks after you receive the goods. Having a trade credit and paying it back on time is another way to build up your business credit.

You don’t have to buy from a large corporation to have trade credit with a vendor. You can set up a trade credit with smaller vendors, such as office supply distributors.

6. Pay Your Creditors on Time

Your payment history is one big factor that business credit companies take into account when determining the creditworthiness of your small business. You should always make on-time payments, and try to make early payments when you can.

You should also aim to keep your credit utilization low, at about 30% or less of your available credit. This means that if you have a business credit card with a limit of $10,000, you should try to only use about $3,000 at a time before paying it back.

7. Monitor Your Credit

Whether you already have great credit or want to build your business credit score, it’s important to monitor your accounts at all three major business credit bureaus. Just like you should keep tabs on your personal credit cards, make sure to regularly check your business credit report. You’ll want to request a report from all three bureaus at least once a year and make sure that your information is updated. You can report any errors to the credit agencies.

Build Your Business Creditworthiness Today 

Knowing how to build business credit and having a good business credit score are essential when you want to expand your business and apply for business financing. If you want to build business credit, take care to pay your creditors on time, apply for a business credit card, build up your relationships with your vendors, and apply for an EIN and a DUNS number. Keep track of your business credit rating and make sure to report any errors to the business credit bureaus.

With Backd, you can get a business line of credit to help with all of your small business financing needs. Backd offers fast, revolving funding from $50,000 to as much as $750,000. Best of all, when you apply, there is just a soft credit pull. This means the credit inquiry will appear on your report but it won’t affect your credit score. Apply now, and find out if you qualify in just 24 hours.

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