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How Business Credit Works and How You Can Build it for Your Business

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Last editedMar 20212 min read

You're an ambitious startup with big dreams. You have your sights squarely set on global domination. But growing your business sustainably requires capital investment. A nascent company like yours doesn’t have the liquid assets it needs to make large-scale investments. So, what do you do? You look for a small business loan. Carefully managed borrowing can fuel your growth. But applying for loans can be an extremely frustrating prospect if your company’s youth means that it’s not had the chance to build its business credit.

Here, we’ll look at how business credit works and what you can do to build yours. But first, let’s make sure we’re all on the same page. 

What is business credit?

Your business credit is your company’s borrowing power. It determines how likely lenders are to consider you for finance. Just like in your personal finances, the higher your business credit score, the better choice of loan products and lines of credit you will have, and the more favorable rates you’ll be able to command. 

Lack of business credit can be a source of frustration. Lenders (quite understandably) want to know as much about a new company as possible before they consider lending to them. And the more good stuff they can find out about you, the better your chances of borrowing on terms that suit you. 

If you’re tired of having doors slammed shut in your face, it’s time to find some fast and effective ways to establish and build your business credit. 

Here’s how...

Get listed

You’re hard at work running your business and delighting your customers so they’ll keep coming back. But in official terms, your business may not actually be on the map. And lenders may question your legitimacy. The good news is that it’s quick, easy and affordable to put your business on the map:

  • Get your business phone number listed in local directories

  • Open a business bank account (you shouldn’t mix business and personal finances anyway), and use this to pay your bills

  • Open a business credit file

  • Get a website, even if it’s just a holding page 

These simple steps will ensure that lenders know you exist.

Build relationships with vendors

Paying quickly and in full is a great way to stay on good terms with your business. And this relationship can also help you to build your credit score. Once you’ve established a good relationship with vendors, ask them if they report to credit bureaus. If they do, ask them if they’ll consider extending a line of credit with net-60 or net-90 repayment terms as opposed to the standard net-30. Continue paying this on time all the time, and watch your credit rating rise. 

Get a business credit card

If you haven’t already, you should seriously consider getting a business credit card with a lender that reports to all the major credit reporting agencies. A credit card can be an easy way to spread the cost of small sundry expenses, and reduce their impact on your cash flow. What’s more, when you pay your balance off on time and / or in full, it can greatly improve your credit score. 

Get incorporated 

If you’ve done all of the above yet still find that you’re banging your head against a wall when applying for credit, it may be because your personal and business finances are too intertwined. 

Consider getting your company incorporated or becoming an LLC. When you add an inc. or LLC to your company name, you can extricate your business and personal credit. It also means that you can’t personally be sued for anything your company does. 

We can help

If you’re interested in finding out more about building business credit, business loans, or any other aspect of your business finances, then get in touch with our financial experts at. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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