Building Small Business Credit

Credit is a six-letter word that can change your life or inspire many four-letter words, depending on your relationship with it.

Getting credit is a major way small-business owners finance a new venture. Credit must first be obtained and then built – but it isn’t built in a day. If you’re new to the game, getting credit can be tricky and downright frustrating if you don’t have an established business credit history.

small business credit

Small businesses often fail due to poor money management. Good credit is one of the main ways companies can obtain cash flow, create jobs and eventually expand. Proving that your business is reliable or creditworthy to lenders and investors is crucial to having banks say “yes.”

Personal Credit Does Count

If your business has no credit history, issuers will zero in on your personal credit as a determining factor. A 2010 Federal Reserve report found small-business credit cards usually come with a personal guarantee stipulation. Lenders look at outstanding debt, determine if you’re good at paying your bills on time and assess your creditworthiness. Personal credit scores range from 300 to 850. Anything over 700 is considered good.

Create an Actual Business

Even though your personal history can be a factor, try to define your company as much as possible. Put your business bills and utilities in the company name and pay them through a commercial bank account.

Establish your business as a corporation or LLC, and get an Employer Identification Number (EID) from the Internal Revenue Service. Then make sure your business is entered under the Data Universal Numbering System to receive a DUNS Number. Dun & Bradstreet Credibility Corporation regulates the DUNS database which contains more than 100 million businesses and allows your credit information to be tracked.

Just the Facts

Make sure the major credit bureaus – Equifax, Experian and TransUnion – have accurate information about your personal and business credit. If they have any incorrect or outdated information like unpaid bills or reduced credit, dispute it and get the error fixed. Those errors could be an unnecessary drag on your credit score.

Turn to Credit Unions and Government Programs

You may want to try multiple lenders, possibly going to banks for loans and lines of credit and turning to credit unions for credit cards.

Small-business lending has been a government priority in the past few years. The U.S. Department of the Treasury oversees several local community-based programs that help small businesses. President Barack Obama signed the Small Business Jobs Act of 2010 which created two initiatives aimed at strengthening state programs that lend to small businesses:

  • Small Business Lending Fund (SBLF): The Treasury invested $4 billion in this fund which gives money to community banks and community loan development funds to increase small-business lending. These funds are available in nearly 3,000 locations in 47 states and the District of Columbia.
  • State Small Business Credit Initiative (SSBCI): It allows states to use $1.5 billion in federal money for state programs that work with private lenders to invest in small businesses.

Raise and Maintain Your Profile

Once you’ve gotten some money, make important choices in the beginning will help you build your business credit.

  • Open a business checking and savings account and figure out your monthly expenses. Pay things like utilities on time.
  • Don’t pay vendors and suppliers upfront, try to set up credit accounts with them and pay them off within the month.
  • Lease equipment in the beginning because it can be used as collateral. The leasing companies will report your payments to credit bureaus, further helping to establish good credit.
  • Try not to max out your business credit card. Preferably, pay it off at the end of the month. If there is a balance, make sure it’s no more than 30 percent of your credit limit.

About a year of this consistent behavior will help you get approved for larger loans, lines of unsecured credit and give you greater access to capital, which in turn will give you the ability to expand in the future.

About the Author: Jon Robinson is the Director of Operations for, America’s Debt Help Organization.