How to Build Business Credit to Access More and Better Financing

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Having a business credit profile has many advantages, especially if you have a good score.

Like personal credit, bureaus keep information about business credit history and activity. This information is crucial as lenders and insurance companies use it to pre-qualify businesses for various credit products.

With an excellent score, you can lower your business insurance premiums or even help you attract low-interest business loans. It is also much safer to separate your business and personal finances.

However, before enjoying the benefits of an excellent score, you need to learn how to build business credit.

Business credit and loans

If you are wondering whether your business credit is the reason for not being approved for that loan you needed, there is a high chance that you are right.

Lenders and insurance companies examine business credit reports when issuing loans or qualifying applicants for leases and business lines of credit. If you have a bad business credit score, it shows that you might be less trustworthy and carry a more significant risk of default.

This risk is reflected in higher interest rates and premiums as well as stringent eligibility requirements.

Excellent credit score, on the other hand, attracts better interests and perks when applying for loans and credit products.


How to build a strong credit score

You might not need a loan at the moment, but you may in the future. As such, it is recommendable to start building your credit score and history as soon as you start a business. Here are a few insights to help you:

1. Register and put your business on the map

You need to have a business credit file before you can build your credit. This means you must register your business. It is also recommendable to open a business bank account.

This will put your business on the map and allows bureaus to start monitoring your credit activity.

2. Obtain an EIN (employer identification number)

An employer identification number is crucial as it identifies your business as an entity. It is also a free service by the IRS.

An EIN allows you to operate legally.

Lenders and financial institutions use this number to review the legitimacy of your business and information during a loan application. Make sure you register everything under your legal business name.

3. Incorporate your business

Incorporating your business by adding an INC or LLC is crucial if you want to separate your business and personal finances.

Without incorporating your business, there is no distinction in your credit activity. If you already have a bad personal credit score, all the more reason you need to incorporate your business and build a separate credit history for the venture.

Nonetheless, it is essential to build your personal credit.

4. Create a line of credit with vendors and suppliers

Creating a line of credit that you can use to pay for supplies and services is one way to build business credit. Just make sure you choose vendors and suppliers that report your activity to credit bureaus.

It is also advisable to apply for business credit cards with various banks.

Use these lines of credit to pay your bills and build a perfect history for your business.

5. Pay all your debts on time

Doing all the above can help you build strong credit. However, growing your score boils down to paying all your debts on time. After all, a credit score reflects one’s creditworthiness or ability to pay back the loan within the specified timeframe. If you default on loans and debts, there is no way you will build your credit score.

A strong credit score means a strong business

There are various other little things you can do to build your business credit.

  • It is essential to monitor your business finances and credit activity to ensure your actions are in line with your credit goals.
  • While having business lines of credits is convenient, you should only use credit when there is a need.
  • Spending on unnecessary expenses for a better business score is ill-advised unless you are eyeing a given score to qualify for a loan.
  • You should also check your business credit score regularly and ensure there are no errors.

Make sure to follow all these tips to get a healthy and strong business credit score.

Do you have a business loan, or are you looking to get one? Let us know in the comment on some of the challenges you face.