If you own a small business, your company’s credit history may have a significant impact on your ability to get the financing you need to grow. If you can build business credit early your business will have a better chance at success.
According to the 2019 Fed Small Business Credit Survey, 54% of employer firms rely on business credit alone or both business and personal credit to get the funding they need.
You build business credit the same way you build personal credit. There are three major commercial credit bureaus that actively maintain business credit reports:
- Dun & Bradstreet
Not all lenders and vendors report your credit relationship to all three.
Just as you would with personal credit, you’ll need to add both revolving and installment credit to your business credit record. You’ll have to make your payments on time and watch your credit utilization ratio.
Whether you’re starting your business credit history from scratch or looking for ways to improve it, here are some tips that can help.
1. Get Vendor Accounts
Vendor credit can be an excellent way to build business credit and improve your cash flow management.
With a vendor account, you can set up payment terms that give you time to pay an invoice instead of the supplier requiring cash on delivery.
With net-30 payment terms, for instance, you’ll have 30 days to pay your bill, often with no interest attached.
Before you choose a vendor, though, find out whether they report to any of the commercial credit bureaus.
2. Get A Business Credit Card
Most small business credit cards report to at least one of the major commercial credit reporting agencies, and some card issuers report to all three.
If you use the card regularly and pay your bill on time each month, you’ll start building a positive payment history.
You don’t ever have to pay interest. Just pay your balance in full each month by the due date, and you’ll never pay a dime more than you charged.
Just keep in mind that some card issuers, including Capital One and Discover, also report all small business credit card account activity to the consumer credit bureaus.
👉 If you use one of these cards, it may affect your personal credit scores. That can be a good thing or a bad thing, depending on how you manage your card!
3. Add Accounts
You can add accounts you’re already paying for your business, such as your phone, internet, and utility bills, to your business credit record.
It will take time to build business credit, but the more accounts you have, the faster the process will be.
4. Get A Nav Account
Nav provides several services to small business owners, including customized financing recommendations, access to your full credit profile, and cash flow insights.
What’s more, Nav’s Business Boost and Business Loan Manager accounts, which provide extra features and tools, report your monthly payments to all three major commercial credit bureaus.
Again, the more tradelines you have on your business credit reports, the more information lenders have to determine the creditworthiness of your business.
5. Get A Small Business Loan
Many lenders report to at least one of the major business credit reporting agencies.
At the very least, some report to the Small Business Financial Exchange, a credit data service that provides information through commercial credit agencies such as Equifax, Experian, Dun & Bradstreet, and LexisNexis.
Your payment history with these lenders could show up on reports pulled by other lenders from those credit bureaus.
If you use this option be sure your cash flow is sufficient to make the monthly payments on the loan, including any interest and fees that are included.
👉 Also, note that small business loans are typically more expensive for relatively new businesses.
If you want to avoid expensive debt, consider a business credit card instead.
Focus On On-Time Payments
Whatever path you choose to start building your business credit history, the most important thing you can do is pay your bills on time every time.
To avoid missing a payment, consider setting up automatic payments, or at least reminders if you want to pay manually.
Establishing a solid business credit history can take a while, but if you follow these steps and pay on time, you’ll be well on your way to more affordable financing options in the future.
Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements, or recommendations expressed in this article are those of the author alone, and may not have been reviewed, approved, or otherwise endorsed by any of these entities prior to publication.