How to Get Business Credit as a Small Business

Getting business credit set up can be a game-changer as a small business owner. If you’re looking to expand, buy equipment, get a business credit card, or simply establish your company’s financial credibility for future borrowing — proving you have good business credit is essential. 

In this article, we’re looking at the difference between personal and business credit, how to build a strong business profile from scratch, and tips on how to use your business credit responsibly.

What is business credit?

Business credit refers to a financial profile that reflects the creditworthiness of your business, much like your personal credit rating does for you as an individual.

It’s an indicator of how well your business manages its financial obligations, and its ability to repay debts. Unlike personal credit, which is tied to your social security number, business credit is associated with your business’s Employer Identification Number (EIN). 

For small businesses, having a strong business credit score is significant. It can directly affect your ability to secure financing, negotiate better terms with suppliers, and manage your daily cash flow. 

With a well-established business credit profile, you can access larger credit lines and better financing terms. You’ll also have less reliance on providing personal guarantees, which helps protect your personal assets and allows you to build a stronger, more resilient company.

Business credit vs personal credit

Your personal credit scores are influenced by factors like your payment history, the length of your credit history, and debt-to-credit ratio — but in the case of business credit, your score will be based on your company’s overall financial behavior. 

The key distinction between the two is that business credit evaluates the financial strength of your business, without taking your personal financial situation into account. A good business credit score will send a signal to potential lenders, suppliers, and partners that your business is trustworthy and financially responsible.

This separation between company and personal finances allows your business to access credit lines based on its own merits. Because you’ll most likely apply for business credit using your EIN, you won’t be limited by whatever is happening with your personal credit score. 

When it’s time to apply for business financing, it’s important to check whether the lending provider underwrites your business based on your business credit score, or underwrites you as an individual based on your personal credit rating.

Most lenders underwrite the individual, which can limit your business borrowing potential. At Credit Key, we directly underwrite your business. This means we’re able to offer higher credit lines with extended net terms up to 12 months, plus we have higher approval rates for our borrowers.

6 steps to establish small business credit

Here’s a quick rundown of how to set up business credit for your small business. Although the process isn’t difficult, you’ll need to plan things out step-by-step. Your goal is to create a strong credit profile that will enable you to borrow the amounts you need, when you need it, to keep everything running smoothly as you grow. 

Keep your personal and business finances separate

Tracking your incoming and outgoing cash can get messy at the best of times. This is why it’s essential that you keep your business and personal finances separate, and avoid blurring the lines between the two. Separate accounts make things much easier at tax time, and it’s a critical first step to getting business credit.

Start by forming a legal business entity, such as an LLC or corporation, which will create a clear legal distinction between you as an individual, and your business. 

Once that’s set up, you’ll need to obtain an Employer Identification Number (EIN) from the IRS, which you’ll use for tax filings and business credit applications. 

Next, you’ll need to have a dedicated business bank account, and make sure that all of your business-related transactions, including expenses and income, go through this account. This will establish a clear financial identity for your business, and make it simpler to track your cash flow.

Register your business with a credit bureau

To start building credit, your small business needs to be recognized by the major business credit bureaus, such as: 

• Dun & Bradstreet
• Experian
• Equifax
• TransUnion

You can do this by applying for a D-U-N-S number from Dun & Bradstreet, which acts as a unique identifier for your business. This number is essential for establishing a credit file with the Dun & Bradstreet bureau. Other organizations and lenders can also use this data to identify risks and decide whether to provide financing for your business.

It’s important to make sure your business information is consistent across all the platforms that your business appears on. Double check that your business name, address, and EIN are consistent and accurate to avoid any errors that could get in the way of your credit-building efforts.

Obtain vendor credit

If you’re just starting out, or you’re an existing business that doesn’t have an established business credit history yet, applying for vendor credit is a simple way to get started.

Vendor credit is a B2B payment solution that enables you as a customer to buy products from a supplier, and defer the payment to a later date. Your vendors might offer net terms of 30, 60, or 90 days, but some vendors will offer your even greater flexibility, with repayment terms up to 12 months. 

By paying your vendors on time (or even ahead of schedule!), you can establish a positive payment history, which will be reflected in your business credit reports.

Work with vendors that report to credit bureaus

For vendor credit to be effective, you’ll need to select vendors that report to credit bureaus. Not all of them do this, and the reporting part is essential if you want to build a strong credit profile for future borrowing.

When you’re choosing suppliers and service providers, prioritize the ones who will report your positive payment behavior to the major bureaus, so you have solid proof of your company’s creditworthiness.

A positive score with credit bureaus makes your business more attractive to lenders, which can lead to larger lines of credit, faster approvals, lower interest rates, and the ability to negotiate better repayment terms.

Pay your bills on time — every time

If you’re looking to build bulletproof business credit, timely payments of expenses and vendors are non-negotiable. Consistently paying your invoices on time shows lenders that your business is reliable and financially responsible, which reduces payment risk on their side.

On the other hand, late payments can seriously damage your credit score, meaning you might not be able to get financing in the future. As a business owner, this can leave you in a tricky situation if you urgently need to replace large equipment or buy new stock, but don’t have enough working capital to cover things.

Make it a habit to pay any invoices, credit card bills, and any other financial obligations on or before the due date. It’s a good idea to set up automatic payments for your regular outgoings to avoid accidentally missing any deadlines.

Because your payment history is reported to business credit bureaus by your suppliers (if they’ve opted into this reporting), your company's business credit score will improve steadily over time.

Monitor your credit

Securing business credit isn’t a once-and-done situation. Much like getting regular dental checkups or taking your car in for a service, you’ll need to manage your lines of credit to keep everything looking good.

Credit utilization refers to the amount of credit you’re using compared to your total credit limit. Experts recommend you keep your credit utilization low, below 30%, to show that your business isn’t too reliant on borrowed funds, and that you can manage your finances responsibly. 

A credit utilization percentage over 30% can be a huge red flag to lenders, who might feel that your business is overextended financially, and is too much of a risk for them.

For example, say your company has a line of credit and regularly borrows close to the maximum limit, but manages to make all necessary repayments without missing any deadlines. 

While you have a good payment history on paper, the proportion of credit used compared to the total available credit may still negatively impact your business credit score. This is because your ratio of borrowing suggests you’re under financial strain, and your company might be struggling to manage cash flow.

This overall financial behavior could lead to a lower credit score, which can affect your future borrowing terms and the ability to get approval for additional credit.

How to use business credit responsibly

Using your lines of credit wisely is what will keep your business healthy, and help you to achieve your long-term growth goals.

Diversify your credit sources

As a business owner, you’ll most likely end up with different types of credit, such as business credit cards, loans, and trade credit.

Diversifying your credit sources in this way not only helps with day-to-day cash management, it also strengthens your credit profile by showing that your business can handle various forms of credit responsibly. 

By strategically using these credit options, you can manage the everyday running of your business, and fund larger projects and purchases without overextending your business.

Resist the temptation to over-borrow!

Access to credit can be a powerful tool for growth, but it can also leave you feeling like a kid in a candy store when you see sales or special deals that are too good to pass up.

Resist the temptation to borrow anything outside what your business can comfortably repay. Over-borrowing is a trap that many small business owners can fall into, and it can lead to high debt levels. This makes it difficult to manage repayments, and puts your business at risk, as well as having a negative impact on the credit utilization score we mentioned earlier.

Before taking on any new debt, take a careful look at your business’s financial situation and future revenue projections. If you need to max out your credit for any reason, make sure you have a clear plan laid out for how the funds will be used, and how they will be repaid. 

Choosing the right lines of credit to support your small business growth

When you’re shopping around for small business financing, look for lines of credit that offer flexibility and favorable terms. Any line of credit you choose should align with your business’s cash flow patterns, growth objectives, and repayment capacity. 

Take the time to explore and compare different credit options, companies, interest rates, and terms before making a final decision. Some credit lines may let you adjust your payment schedule based on your business’s cash flow, giving you the flexibility to repay more in high sales periods, and scale back during slower times. If you’re a seasonal business, this arrangement can be ideal.

You should also check to see whether lenders offer competitive interest rates, fees, and terms that match your business’s financial strategy. The right line of credit should support your growth without adding unnecessary financial pressure.

The first step in choosing a line of credit is understanding your business’s specific needs. Are you just looking to cover some short-term expenses, such as inventory purchases or payroll, or do you need long-term financing to cover things like large machinery?

Short-term lines of credit, such as net 30 terms, can be ideal for managing day-to-day operations, while longer-term credit solutions might be better suited for significant growth initiatives and big purchases.

Consider using Buy Now Pay Later (BNPL) financing

An increasingly popular financing option for small businesses is Buy Now Pay Later (BNPL). It’s a flexible solution that lets your business make purchases up front and pay them off over time, often with extended terms ranging from a few months to a year.

BNPL is particularly useful for managing cash flow, as it lets you align your payment schedule with your revenue cycle. This means you can invest in the goods or services your business needs right now, and pay for them as your business generates income, reducing the strain on your working capital.

Wrapping up

By understanding what business credit is, and the steps you need to take to build and maintain it, you can position your business for greater financial flexibility, and more growth opportunities.

It’s important to remember that securing business credit isn’t a once-and-done thing. The key to keeping a good credit score lies in responsible financial management, meaning you’ll need to prioritize paying bills on time, and choose the right lines of credit for your specific business. 

Whether you’re seeking short-term financing to manage daily operations, or long-term credit to power expansion, it’s important to choose a lending provider that fits with your business’s unique needs, allowing you to invest in new products without overextending your financial resources.

At Credit Key, we partner with select merchants to bring you flexible payment options in all of the channels you buy from — including online, over the phone, and in-store. You can enjoy repayment options from net 30 terms up to 12 months. Get an instant decision for a line of credit up to $50K, and pay it back on your terms. No hidden fees. No hard credit checks. Learn more here.