Summary: A list of 5 ways you can build your business credit and grow your purchasing power.
As a small business owner, your company’s credit history may have a significant impact on your ability to get financing or business deals.
According to the 2019 Fed Small Business Credit Survey, 54% of employer firms rely on business credit alone, or both business and personal credit, to get the funding they need.
There are three major commercial credit bureaus that actively maintain business credit reports:
- Dun & Bradstreet
But not all lenders and vendors report your credit relationship to all three.
So whether you’re starting your business credit history from scratch or looking for ways to improve it, here are some tips that can help.
1. Get Vendor Accounts
Vendor credit can be an excellent way to build credit and improve your cash flow management.
With a vendor account, you can set up payment terms that give you time to pay an invoice instead of the supplier requiring cash on delivery.With net-30 payment terms, for instance, you’ll have 30 days to pay your bill, often with no interest attached.
Before you choose a vendor, though, find out whether they report to any of the commercial credit bureaus.
Secured Cards can be much easier to qualify for since you don't need a good credit score to get approved.
2. Get A Business Credit Card
Most small business credit cards report to at least one of the major commercial credit reporting agencies, and some card issuers report to all three.
As you use the card regularly and pay your bill on time each month, you’ll start building a positive payment history.
Also, one thing that sets business credit cards apart from other forms of business financing is that you don’t ever have to pay interest—just pay your balance in full each month by the due date, and you’ll never pay a dime more than you charged.
Just keep in mind that some card issuers, including Capital One and Discover, also report all small business credit card account activity to the consumer credit bureaus.
So understand that if you use one of these cards, if may impact your personal credit scores.
Always figure out which credit scoring method will be used before you apply for credit.
3. Add Accounts
If you’re eager to add new tradelines to your business credit report, you can work with a company like eCredable.
For a small fee, it will add up to 24 months’ worth of payment history for accounts you’re already paying for your business, such as your phone, internet, and utility bills.
Building a business credit history can take time, but the more references you have, the faster the process can go.
When dealing with a Secured Credit Card you get to choose your own credit limit, you should start with a good amount.
4. Get A Nav Account
Nav provides several services to small business owners, including customized financing recommendations, access to your full credit profile, and cash flow insights.
What’s more, Nav’s Business Boost and Business Loan Manager accounts, which provide extra features and tools, report your monthly payments to all three major commercial credit bureaus.
Again, the more references you have listed on your business credit reports, the more information lenders have to determine the creditworthiness of your business.
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5. Get A Small Business Loan
Many lenders report to at least one of the major business credit reporting agencies.
At the very least, some report to the Small Business Financial Exchange, a credit data services that provides information through commercial credit agencies such as Equifax, Experian, Dun & Bradstreet and LexisNexis.
Your payment history with these lenders could show up on reports pulled by other lenders from those credit bureaus.
If you go this route, just make sure your cash flow is sufficient to make the monthly payments on the loan, including any interest and fees that are included.
Also, note that small business loans are typically more expensive for relatively new businesses.
If you want to avoid expensive debt, consider a business credit card instead.
Focus On On-Time Payments
Whatever path you choose to start building your business credit history, the most important thing you can do is to ensure that you pay your bills on time every time.
Even if you’re just a few days late, it could be reported—in contrast, late payments aren’t reported on the consumer side of things until you’re 30 days late.
To avoid missing a payment, consider setting up automatic payments, or at least reminders if you want to pay manually.
Establishing a solid business credit history can take a while, but if you follow these steps and make it a goal to always pay on time, you’ll be well on your way to more affordable financing options in your future.
By Gerri Detweiler
Gerri’s been guiding individuals through the confusing world of credit for 20+ years. Her articles have been widely syndicated, and she is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track.