Building Business Credit

While your personal credit score impacts your ability to take out loans, building business credit helps you access financing when you need it. A business line of credit can make all the difference when it comes to product development and growth, so it’s worth maintaining a good score. We’ll cover the basics of business credit below, including tips to build a positive profile.

What is business credit?

Like a personal credit score, business credit helps lenders determine how likely your business is to pay back borrowed money. In Australia, businesses are rated on a scale between 0 to 100 with 100 being the highest possible credit score. Lenders will run a business credit check to find out where you fall on this scale – and the lower a credit score, the higher the risk of default.

Sole traders are judged on their personal credit scores. Limited companies will have separate business credit reports created by Australia’s three main credit reference agencies:

• Experian

• Equifax

• Illion (formerly known as Dun & Bradstreet)

What are the benefits of building business credit?

It pays to build your business credit. When your business is new, there’s no history of repayments to use as the basis for a credit report. This means small businesses and start-ups are often beginning from scratch. There are numerous benefits of building business credit because your score impacts your chances ofapplying for loans and company credit cards.

Another factor to consider is that your business’s credit history and scores are publicly searchable. This means that any investors are likely to run a business credit check before determining whether to offer funding. A business lacking a positive credit history is riskier in the eyes of investors. It’s not just investors who will consider your credit – it’s potential partners, suppliers, and even competitors. A lack of credit will impact your everyday business in multiple ways, from interest rates to investment opportunities and contract negotiations.

What goes into a business credit report?

You want your business credit to be as close to 100 as possible, so it’s important to understand how this figure is calculated. As with a personal credit score, business credit reports are primarily determined by your ability to repay bills on time. The main credit agencies will consider utility bills, rent payments, loan repayments, and supplier invoices. Late or missing payments will cause your score to plummet. On the other hand, paying bills early or on time will elevate your score.

In addition to payment history, here are a few factors that go into your business credit report:

• Number of credit and loan applications

• Number of times you’ve exceeded your business account overdraft

• Cash flow history

• History of filing business accounts

• Annual business revenue

• Business assets, such as property and equipment

• Public records such as liens or judgments

• Length of time your company has been trading

Tips for building business credit

Understanding the various factors that go into building business credit is the first step to improving it. Here are a few tips to build your business credit profile, particularly if you’re just starting out.

• Be sure to keep your personal credit separate from your business line of credit. Open separate business bank accounts and use dedicated accounting systems to avoid mixing up bills.

• Request your credit report from all three major agencies and verify it for accuracy. If there are any errors, you can file a dispute to have it corrected.

• If you’re just starting out, open trade accounts with suppliers to start building a credit profile immediately. Be sure to maintain positive supplier relationships, paying all bills early or on time.

Finally, remember that your business credit is a work in progress. Once you’ve established credit, you need to keep it current to access future financing. Don’t be afraid to borrow small amounts to keep lines of credit open, provided you know you can make the repayments.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.