How To Build Business Credit: What You Need To Know

As a business owner, establishing solid financial footing is crucial for growth and long-term success. Just like individuals have credit scores, businesses also have credit ratings, which can impact their ability to secure loans, attract investors, and negotiate favorable terms with suppliers. Building business credit might seem like a complex process, but with the right knowledge and strategies, you can establish a strong credit profile that will benefit your company for years to come.

Keep reading to learn more about business credit, how it works, and how to build business credit.

What is Business Credit?

Business credit refers to the creditworthiness of your company. Just like personal credit reflects how well you handle personal financial obligations, business credit evaluates how responsibly your business handles debt and manages financial transactions. Credit bureaus, such as Dun & Bradstreet, Equifax, and Experian, track business credit by compiling data on your company’s financial behavior.

Your business credit score can range from zero to 100, depending on the credit bureau. The higher the score, the more reliable and financially healthy your business appears to lenders and vendors. With a strong business credit score, you are more likely to receive better terms on loans, lower interest rates, and access to larger lines of credit.

How Does Business Credit Work?

Business credit is built on a foundation of trust between your company and financial institutions or vendors. When your business borrows money, takes out a line of credit, or purchases goods on credit from suppliers, these entities report your payment behavior to credit agencies. Consistently paying bills on time and maintaining low levels of debt will boost your business credit score.

There are key differences between business credit and personal credit. First, information about your business’s financial performance is often publicly available. Unlike personal credit reports, which require permission for access, anyone can view your business credit report. Additionally, business credit is separate from personal credit, even though some business owners may initially rely on their personal credit.

Keeping these two accounts distinct is crucial for building a solid business credit profile. Mixing personal and business credit can complicate financial records and impact both scores.

A significant aspect of business credit is the Paydex score, which is used by Dun & Bradstreet to evaluate how quickly a business pays its bills. A score of 80 or above reflects a business that consistently pays on time or ahead of schedule.

Building strong business credit gives your company access to growth opportunities, enhances credibility, and shields your personal financial situation from business-related risks.

Why is Building Business Credit Important?

In the world of business banking. building and maintaining good business credit is vital for several reasons. One key benefit is access to capital. When you apply for a business loan or a business line of credit, lenders evaluate your company’s financial responsibility. A strong business credit score can help you secure loans with favorable terms and lower interest rates.

Good business credit also strengthens supplier and vendor relationships. Many suppliers offer trade credit, allowing you to buy goods and pay later. Businesses with strong credit scores can often negotiate better terms, such as longer repayment periods or higher credit limits, improving cash flow flexibility.

In some cases, your business credit score can affect your insurance premiums. Insurers may consider your credit score when setting your policy rates, so a higher score could reduce costs. Moreover, a solid business credit profile provides opportunities for expansion. With better access to capital and more favorable credit terms, your business will be better positioned to invest in new equipment, office space, or inventory, supporting growth and long-term success.

Strategies to Build Business Credit

Now that you understand the importance of business credit, here are a few actionable strategies for building and maintaining it.

1. Incorporate Your Business

One of the first steps to building business credit is separating your personal finances from your company’s finances. Incorporate your business as an LLC (Limited Liability Company) or a corporation. This step establishes your business as a separate legal entity, which is essential for creating a business credit profile.

2. Get an Employer Identification Number (EIN)

Just as individuals have Social Security Numbers, businesses have EINs, or Employer Identification Numbers, which the IRS uses for tax purposes. Obtaining an EIN is necessary for opening a business bank account, applying for business licenses, and filing taxes. It's also crucial for building business credit, as it helps you establish your business as its own entity.

3. Open a Business Bank Account

Opening a business bank account is a foundational step in separating your personal and business finances. When you consistently use this account to handle your business’s expenses and income, you establish a financial history that can positively impact your business credit. Lenders and credit bureaus want to see a clear distinction between personal and business accounts.

4. Establish Credit with Vendors

Many suppliers offer trade credit – an arrangement where you receive goods or services and pay for them later. When vendors report your payment history to credit bureaus, it can help build your business credit. Make sure to choose vendors that report to credit agencies, and always pay your bills on time (or even early).

5. Apply for a Business Credit Card

A business credit card is another effective way to build business credit. Use it regularly for business expenses and pay off the balance on time each month. Just as with personal credit cards, the key is to manage your balances wisely and avoid maxing out your credit limits. Responsible use of a business credit card demonstrates financial reliability.

6. Monitor Your Business Credit Reports

Just like with personal credit, it’s important to regularly monitor your business credit reports to ensure accuracy. Mistakes can happen, and incorrect information on your report could negatively affect your score. By checking your business credit reports, you can catch errors early and take steps to correct them. Many credit bureaus offer services that allow you to view and track your business credit profile.

7. Pay Bills on Time

Timely payment of bills is one of the most critical factors in building business credit. Late payments not only damage your score but also signal to lenders and suppliers that your company may not be reliable. Set up payment reminders or automate your bill payments to ensure that you meet all deadlines.

8. Increase Credit Limits

As your business grows, you may need access to more credit. Requesting higher credit limits from your credit card issuer or lenders can improve your business credit utilization ratio, which measures how much credit you're using compared to your available credit. A lower utilization ratio is a sign of responsible credit management.

Start Building Business Credit Today

Whether you’re just starting out or looking to improve your business’s financial standing, Academy Bank can help you start taking steps to build business credit today.

From business checking, savings, business borrowing, treasury services and commercial lending, we want to be your business partner. We are here for your business successes and challenges, helping you find ways to fuel your business growth.

 

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All loans and lines of credit are subject to credit approval and require automatic payment deduction from an Academy Bank business checking account. Origination and annual fees may apply. Opening balance applies for Academy Bank business checking accounts. Monthly service charge may apply.