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How to Establish Business Credit

Before you can begin to grow your business, you need the right tools to help your company get off the ground. To do that, you’ll need credit. That might seem like a daunting prospect — especially if you have little or no personal credit to your name. But it doesn’t have to be as scary as it sounds. 

Establishing business credit is a process that anyone with a new small business can undertake. So before you start growing your new venture, get acquainted with some of the options available so that you are ready to begin when the time comes.

What Is Business Credit?  

Business credit is a credit arrangement between a business and a lending institution, in which the business agrees to repay the loan according to predetermined terms. The most common type of business credit is a business loan. A business owner may also establish a line of credit with a lending institution, which can be used for short-term financing needs. Good business credit is important for obtaining favorable loan terms and for building your business credit history.

Why Is It Important to Establish Business Credit?

Business credit is important for small businesses because it allows them to establish a good credit history. This can be helpful when applying for a business loan, as lenders will often look at business credit reports when considering a loan. Having a good business credit may also help you get better terms on a loan.

Does Your Personal Credit Matter for Your Business?

As a small business owner, you may be wondering if your personal credit matters for your business. The answer is yes and no. While your personal credit score is not a factor in qualifying for a business loan, lenders consider it when making decisions about approving your loan. This is because your personal credit history can give insight into your ability to repay a loan and manage your finances.

That said, you can still build business credit without using your personal credit. There are a few ways to do this, such as by using a business credit card or taking out a small business loan. By paying your bills on time and maintaining a good credit history, you can start to build business credit that is separate from your personal credit score.

How Long Does It Take to Establish Business Credit?

It can take anywhere from a few months to a few years to establish good business credit, depending on the type of business and how new it is. Businesses need to build up a history of responsible credit use in order to get a good business credit rating, which is reflected in their credit reports and business credit scores. For new businesses, it may take longer to establish a good business credit rating, as they have no history to show lenders and creditors. However, there are things that new businesses can do to help build their business credit rating, such as paying bills on time and using credit responsibly.

Do You Need Business Credit?

The simplest answer is no, your business does not need credit to function. However, it is one of the best tools at your disposal for financing growth and development. Having a strong credit score means that you can borrow more money when you need to, which means you never have to wait for more capital to come in before you start a new project or need funds to pay expenses.

Perhaps the most important reason to have business credit is so that you can develop a safety net early in development without having to save for a long time first. When something happens, you can get the funds that you need right away to help your business survive.

Ways of Building Credit

There are many ways for businesses to build credit. Banks and other institutions have financial vehicles specifically set up to help businesses with this. Here are a few of the most common options. 

Secured Credit Lines

If you have little to no business credit and need a line of credit you can use for a business loan, you may have the option of securing a credit line. To start, you need some form of collateral, such as cash or a cashier’s check. A bank can open a line of credit for you, and use your accounts as collateral in case you default. Then, it is just a matter of using your credit and making the payments consistently. 

While secured credit lines are often lower than unsecured credit lines, they are a good way to get your business up and running without having to prove your business is creditworthy. Just make sure that you keep up with the payments. The more reliably you pay them, the faster your credit rating will grow. 

Equity Lines of Credit

An equity line of credit is similar to a secured business credit line in that it’s a loan you’ll need to pay back with interest. However, the difference is that this type of business loan is unsecured — meaning you have no collateral to put down. Instead, you use the equity in your business as collateral. If you default on the loan, the bank can take part or all of your business. 

This type of business loan is for businesses with a solid cash flow. If you find yourself in this position, you need to be prepared to put up with a higher interest rate than you would with a secured loan.

Business Credit Cards

If you already have a business or are starting a new business and still building your credit, you may be eligible to apply for a business credit card. While the interest rates on business credit cards can be high, they can help you establish your credit and show lenders that you’re able to make regular payments while also giving you a way to purchase the things your business needs with their own line of credit. 

That being said, be careful to avoid overspending because business credit cards often have low credit limits. If you max out your credit card, you”ll look as though you aren’t responsible enough to be trusted with a line of credit — and you’ll end up hurting your credit score.

Build Your Credit with a Small Business Loan

If you’re unable to get credit from the likes of your bank or other lenders, you’re not without options. Instead of looking for a loan, you can try applying for a line of credit through a factoring company instead. 

As a factoring company buys your receivables, they are more likely to view your business as creditworthy, even if banks and other financial institutions won’t take a chance on you. This will allow you to borrow money to grow your business, pay vendors, and handle other expenses you need to take care of. Although you’re borrowing money, you only have to pay it back when your clients pay you, which is a lot different than the standard business loan. It can help with money flow.

Maintaining Business Credit

If you already have a business, it’s important to keep your accounts in good standing. This will not only help you keep the lights on but also makes it easier to establish credit in the future. It might take a little longer for approval, but a business with a good history of making payments on time is more attractive to lenders. 

If you don’t yet have a business, you’ll need to start by establishing your credit history. You want to do this in advance of looking for a loan or credit line so that your business gets approval as quickly as possible.

Who Monitors Business Credit?

Experian is one of the three main credit reporting agencies in the U.S., and it is responsible for monitoring business credit. This includes maintaining business credit reports and scores for small businesses. 

Business credit scores are similar to personal credit scores in that they range from 300 to 850, with a higher score indicating better credit health. However, there are some key differences between personal and business credit scores. 

For example, personal credit scores only factor in information from consumer-reporting agencies, while business credit scores also take into account data from suppliers and other businesses that extend trade lines of credit to a company.

When to be Concerned With Your Business Credit

For a new business, it is important to start establishing and monitoring its business credit as soon as possible. This will help the business build a strong credit history and avoid any potential problems down the road. There are a few different business credit reporting agencies that businesses can use to track their credit history. It is important to check these reports regularly to make sure everything is accurate and up-to-date.

Use Business Credit to Get the Help That You Need

Building business credit is an important way to get the resources that you need when you need them. When you have the funds or credit available, consider hiring an answering service to help keep your customer service ratings high. This will help keep customers happy so that you can maintain revenue and make your credit payments on time. 

If you’re ready to get started with a professional answering service, we’re here to help. Contact Answer Aide by calling (866) 427-3500 or by filling out our online form. We’re happy to partner with you to support your business while it grows.

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