5 Ways to Grow Your Small Business Credit

If you’ve ever had loans, credit cards, or a mortgage, you’ve no doubt had to go through the process of getting your credit score checked. Your credit score is a financial representation of your credit history. We explore how to grow credit for a business with these 5 proven ways to improve or establish small business credit.

02 Mar 2022

If you’ve ever had loans, credit cards, or a mortgage, you’ve no doubt had to go through the process of getting your credit score checked. Your credit score is a financial representation of your credit history. This includes completed payment plans, missed loan payments; even cell phone bills can all contribute to a good or poor credit score. 

The better your credit score, the more likely you are to be accepted for financing, and how favorable your financing rates will be in the future – and it’s exactly the same for your business.

Your business credit score provides banks and other lenders with an idea of how risky a proposition it is to offer your company financing. Better credit often means preferential interest rates, better loan opportunities, and fewer or lower processing fees. Yet building business credit can be tricky for startups or smaller businesses that have little to no financial history to speak of. That’s why understanding how to grow business credit, or even how to establish business credit where you have none at all, can be a key factor in the success of your business.

We explore how to grow credit for a business with these 5 proven ways to improve or establish small business credit.

1. Avoid Utilizing Personal Credit Options

When you first start out as a business owner or manager, you may be tempted to fund your venture with your own personal line of credit. This may be via personal credit cards, or taking out a loan in your own name. We don’t recommend this because mixing personal and business credit muddies the waters when it comes to building good credit for your business.

If you’re in a financial situation that makes those accounts hard to pay off, this could adversely affect your business credit score. Commingling personal and business accounts also makes accounting and working out your taxes much more difficult. Business finance is made much simpler if you keep everything logged clearly under the business or trading name.

2. Open Credit Accounts with Partners or Suppliers

A simple way to establish a credit score is to ask any supplier or partner, like logistics providers, if they can grant you a credit account. You’ll have your very own line of credit that allows you to buy without upfront payment.

Many suppliers will provide an amount of credit far higher than the amount you need to use every month. Great news! This yields a positive credit utilization ratio – the amount of credit you use is much lower than the amount of credit you’ve been granted. This counts positively for credit reporting companies when they calculate your score.

3. Pay Bills Immediately

Late payments are a massive negative strike on your credit score, so it’s important that you always pay your suppliers on time. Conversely, maintaining an open credit line, paying off your balance, and reusing the credit facility again boosts your business credit rating and increases your chances of gaining financing in the future. The same follows for your business’s utility bills. 

Pay your power and water without going into arrears. Check when your premises’ rent is due and don’t miss the deadline for payment. If you can’t set up regular payments, make sure you take into account any time taken for banking transactions. Many are instantaneous, but some banks still recommend sending payments 1-3 working days prior to the due date.

4. Dispute Errors on Your Credit File

Part of learning how to establish business credit is gaining access to your business’s credit report. Companies like Equifax and Experian provide business credit reporting so that you can check every transaction is correct. Most of the time, your score should reflect your financial history accurately. 

There may be occasions, however, when the reporting shows an error. This could be a flagged late payment that your business actually made on time. It could even be a line of credit that you never took out – perhaps you went partway through the application and changed your mind. Check your report or have your chief financial officer look it over to ensure it’s accurate.

5. Business Credit Cards

You can also build your business credit score with a business credit card. This is by far one of the simplest and most practical ways to establish business credit, even for startups with minimal financial history.

53% of businesses logged that they had used a credit card as part of their financial strategy during 2019, according to the Small Business Credit Survey. 21% of businesses used credit cards to fund business ventures in 2020.

A business credit card works well to build business credit because it allows you to spread payments over a period of time. Alternatively, business credit card users can make small purchases and pay them off immediately. This helps build your credit score from the ground up. Business credit cards can be used for everything from utilities to business lunches.

Running a business credit card helps you control business spending and stay on top of your finances – while building a healthy credit rating that makes your financing even more effective in the future.

Ready to build credit with your own business credit cards? Get started today with Capital on Tap.

Written by:
Back Share