4 Simple Ways to Establish or Rebuild Small Business Credit

10 May 2022

For small businesses, a robust credit profile can help you negotiate appealing terms with vendors, lower insurance premiums, and obtain favorable rates and offers for future financing. But building small business credit can be difficult, especially for brand new businesses.

It's not only the benefits of having a solid credit score you should consider; a poor credit score can prevent your small business from accessing vital services. And no credit at all can be just as detrimental to your business as poor credit.

Every small business needs funding to achieve growth, whether at startup or for expansion. It may not be this week or even this year, but every business will be ready to grow at some point. It's worth working on strengthening your business credit sooner rather than later, so when you get to that point, you're not held back by the process of trying to establish or even rebuild small business credit.

The sooner you start the process, the better. Here are four practical ways to uplift small business credit:

1. Separate Personal Credit from Business Credit

While personal credit scores are often used when starting up a business, it’s vital that your small business has its own credit profile. Separating your small business' finances from your own personal finances and credit as early as possible helps to establish or rebuild business credit. It also helps protect your personal finances and credit score.

If you’re a U.S. small business owner, start by incorporating or forming a limited liability company (LLC) to officially and legally register your business. While your personal credit relies on your Social Security number (SSN), your business will need an employer identification number (EIN) by applying online through the IRS. 

U.K.-based businesses, on the other hand, can either lookup or request their Dun & Bradstreet D‑U‑N‑S Number, which similarly establishes your business and business credit score.

Once you've taken steps to establish your business credit separate from your personal credit, you can start building it.

Build New Relationships with Suppliers

Starting credit accounts, or tradelines, with suppliers and vendors will help you build good relationships with them and build your business credit. While not in the same vein as business lines of credit like credit cards or small business funding, they're an important part of establishing your small business’ credit profile.

Buying goods or services from suppliers that offer you trade credit means that rather than requiring payment upfront, they give you a set number of days to pay, for example, net-30 or net-60 days. By reporting payment history to credit reporting agencies, they can definitely have an effect, either positive or negative, on small business credit.

Avoid or Minimize Bad Debt

As with your personal credit, you should aim to minimize bad debt, which means paying invoices, bills, and debt repayments on time or early. Anything that suggests poor cash flow, such as paying late or not paying in full, will impact small business credit.

Organization is key here. Even if you don't have an Accounts Payable (AP) team with structured processes, paying bills should be something every small business stays on top of.

Use a Business Credit Card

Using a business credit card is a valuable method of establishing, building, or rebuilding small business credit, but you need to choose a solid one and use it effectively. It’s another way of strengthening the difference between personal and business credit, and while you may start out with a relatively low credit limit, if used wisely, your credit limit will no doubt increase.

Once you've found the right card for your business (make sure you investigate all the benefits, perks, and rewards that come with a particular card), use it and pay it off monthly to establish your business credit score.

Not only is it easy to apply for business credit cards and build credit, they can be extremely valuable when businesses are just starting out. New businesses might have sluggish cash flow, so being able to cover day-to-day expenses without having to pay there and then can really help.

How Long Does it Take to Build Business Credit?

It can take months to a year to establish small business credit, depending on your business arrangements. It's certainly not an overnight process—credit reporting agencies need time to build a solid picture of your business' spending power and financial health. That’s why it’s important to start thinking about as early in your business’ journey as possible.

But despite the time it might take to establish, building small business credit is extremely valuable. Maintaining a strong credit score will help you with both long-term growth and unexpected short-term emergencies. Even if your credit score has taken a hit, rebuilding business credit is well within your reach.

Find out how a Capital on Tap Business Credit Card can help establish or rebuild small business credit. 

© Copyright 2022. Capital on Tap Business Credit Cards are issued by WebBank, Member FDIC. © 2022 New Wave Card LP dba Capital on Tap.

Written by: Capital on Tap
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