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How to build business credit for small businesses

Tuesday, February 01, 2022

Businesses have credit scores, just like consumers. Business and personal credit can both affect your ability to get funding, rates for loans and more. Establishing and building credit can help make your short and long-term business goals a reality.

Welcome to business credit 101.  In this article, you’ll learn:

Let’s get started exploring how to build credit so you can take your business to the next level.

What is business credit?

A business credit score is a number that shows your business’s creditworthiness –– meaning, how well your business handles its finances, purchasing and debt. Whereas personal credit numbers range from 300 to 850, business credit scores typically range from 0 to 100. Fair Isaac Corporation (FICO) is the most common method of scoring personal credit. But, there is no equivalent for businesses, as each business credit bureau scores their own way – more on that later.

Lenders, including the Small Business Administration (SBA), vendors, suppliers, insurance companies and more all use business credit scores to determine:

  • Terms and rates on loans, including SBA loans
  • Insurance premiums
  • Net terms and credit limits
  • Your ability to raise money from investors
  • If you qualify for contracts

Why is business credit important?

Without business credit, it can be hard to do business. Business credit is crucial to getting a loan or insurance or even inventory. Establishing business credit and having a good credit score has many benefits:

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  • Qualify for lower insurance premiums and better loan terms

  • Qualify for business loans at lower rates – without signing a personal guarantee

  • Good business credit can elevate your standing –– you look good to investors, potential business partners and vendors

Your business credit score is a reflection of the health of your business and tells everyone from lenders, vendors and insurance companies how well your business is doing.

Business credit vs. personal credit

Personal credit is connected to individuals by a Social Security number; business credit history is linked to you by an Employer Identification Number (EIN) or Tax ID Number, which is how the U.S. government recognizes businesses for tax reporting.

You may be wondering: Can’t I just use my personal credit for my small business?
And while in some cases you can, it’s not a good idea to have your business and personal finances intertwined. If you can’t get business financing, you’ll have to potentially use personal savings, your personal credit cards, home equity or other financing.

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Keep in mind, the Internal Revenue Service (IRS) has strict guidelines regarding mixing business expenses and personal expenses. Plus, using your personal credit puts you at risk as an individual. If your business struggles financially or fails, creditors can come after you and your assets for debts incurred by your business.

For small business owners, it’s important to protect both your personal credit and your business credit. If you operate as a sole proprietor, there are times your personal and business credit will affect each other, such as personal guarantees for loans or credit checks for leases. It’s important to know that your personal credit will impact your small business far more than the other way around.

If you can avoid giving your Social Security number for business purposes, it can keep your business separate from your personal finances.

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Business credit reporting bureaus – and their credit scores

Business credit reporting agencies, also called credit bureaus, are the organizations that evaluate business credit. The bureaus collect information regarding a company’s history and financial health. The collected information is compiled and used to assign a business a credit score.

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Dun & Bradstreet, Experian and Equifax are the “big three” credit bureaus that issue business credit scores. Additionally, FICO, while not a credit reporting bureau, issues a FICO Small Business Scoring Service (SBSS) score. The FICO SBSS score is used by the SBA to prescreen SBA 7(a) loans for $350,000 or less, as well as Community Advantage loans.

For reference, an SBA 7(a) loan is a financial tool designed by the SBA to get money into the hands of small business owners. An SBA 7(a) loan isn’t a direct loan from the SBA. The SBA helps small business owners secure loans by guaranteeing a portion of the amount borrowed, capping interest rates and limiting fees. The 7(a) loan program is the SBA’s primary method of assisting small businesses in the U.S.

The most widely used credit scores include:

  • Dun & Bradstreet PAYDEX
  • Equifax Business Credit
  • FICO LiquidCredit Small Business
  • Intelliscore Plus from Experian

As with personal credit scores, there are many types of business credit scores from other companies that collect data. Others include:

  • Accurint by LexisNexis
  • Ansonia
  • Cortera
  • net from Credit.net
  • Global Credit Services
  • Lumbermen
  • PayNet
  • Seafax
  • Tarnell

What makes up a business credit score?

Business credit bureaus collect a lot of information on your business. However, each of these organizations generates business credit reports in a different way. This can be confusing, especially when you’re trying to build up or improve your credit. These are just a few of the factors business credit bureaus can take in account when developing their credit score for your business:

  • Business longevity: The amount of time you’ve been in business factors into the credit score. Generally, the longer you have been in business the better your business credit score.

  • Revenue: Business credit looks at the annual revenue of a business. If your company is bringing in money, that helps improve your score.

  • Debt and debt usage: This takes into account any business credit card debt or small business loans you may have. Credit bureaus want to see that your business is using credit responsibly, making on-time payments in paying off debts. Being responsible with debt is a great way to improve your business score.

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  • Business loan and credit history: A credit score takes into account the loan history, including what loan types and how long it took the business to pay off. Showing a history of paying back loans on time or ahead of schedule can improve the business credit score and attract better rates and terms from lenders.

  • Personal credit history: Some scores, including the FICO SBSS score, take in account the personal consumer credit scores and history of business owners. In fact, FICO SBSS takes into account the personal credit of up to five business owners (any with 20% or greater ownership).

  • Public records: Certain public record types can affect business credit, including:
    • Uniform Commercial Code (UCC) filings, legal notices that lenders file with the Secretary of State when it has a security interest against a business asset.
    • Collections, liens, judgments and bankruptcies.

  • Industry risk: Certain types of businesses carry more risk than others and lenders view the risk based on historical data of that industry at large.

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How to establish business credit

First thing’s first, you need to decide on a structure for your new business. A sole proprietorship is one of the easiest types of structures to set up, but it keeps your personal credit intertwined with your business. Sole proprietorships can have business credit, but getting small business loans with this type may be harder.

Structuring and operating your business as a limited liability company (LLC) or corporation creates a legal entity that’s separate from your personal credit. Creating an LLC or incorporating your business is the absolute first step in establishing credit for your business, giving it the opportunity to obtain credit or apply for funding in its own name.

The path to establishing business credit for the first time

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1. Get a federal Employer Identification Number (EIN). This nine-digit tax ID number is unique and assigned to your company for actions such as tax reporting, opening bank accounts, applying for licenses, permits and loans. (Much like a Social Security number for personal credit.) You can obtain an EIN for free, online through the Internal Revenue Service (IRS).

2. Open a business bank account. With an EIN, you are able to open a business checking account. A business bank account is crucial as it serves as a bank reference when applying for credit and gives potential lenders important information during a funding review. Plus, you’ll need an account to receive deposits from your customers’ credit and debit card payments.

3. Set up your business contact information. Get a business phone number and have it listed. You’ll also want to choose a business address – it’s OK to use your personal address. However, some small business owners will use a service to give their business a location separate from their personal residence.

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4. Create business credit profiles with credit bureaus. Registering with Dun & Bradstreet provides you with the nine-digit Data Universal Numbering System (D-U-N-S) number needed to establish a business credit profile with Dun & Bradstreet. Once established, you and potential lenders, clients, suppliers or partners can get access to your Dun & Bradstreet credit scores using your D-U-N-S number. Businesses that contract with agencies of the U.S. government are required to have a D-U-N-S number. Experian and Equifax allow you to open a business credit file as well.

5. Apply for and use a business credit card. Getting a business credit card can be a good start to begin building your credit. To build your credit report, vendors and accounts need to report to business credit bureaus. Paying with a business card can help with this. Use vendors that report payments. Using vendors that report to credit bureaus is one of the easiest ways to jumpstart your credit. Not all bills you pay report to credit bureaus, so it’s important to know which ones do. You can ask your vendors to report payments, but in case they can’t or won’t, you can begin looking for a vendor that will.

6. Open a business loan. Business loans and business lines of credit are good accounts to open to help build your business credit and payment history. You can use a business loan or business line of credit for expenses or to have as a rainy-day fund to cover emergencies.

Business owners who understand their business credit were 41% more likely to be approved for financing, according to the Nav American Dream Gap report.

What if I don’t have business credit yet?

It can take some time to build up your business’s credit history. Establishing business credit from scratch often means that you’ll use your personal credit as a business owner to jumpstart the process. Lenders may check a business owner’s credit score and report before offering a business loan or business line of credit. If you have less-than-stellar personal credit, it can be difficult to access good rates and terms for loans, credit cards and more to start. If you have bad credit, a merchant cash advance could be an option. Be careful, though: financing with bad credit can have some steep, expensive repayment terms.

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How do you check your business credit?

Monitoring your business credit report consistently can not only help you build credit, but get you on track to having a good credit score. Monitoring your business credit may seem low on your day-to-day responsibilities, but you’ll be glad you know where your credit stands if you need access to cash flow quickly or a loan.

Plus, business credit scores can change frequently as vendors or lenders report new information. Also, if incorrect information is reported, you will want to know so you can take the proper steps. You’ll have to contact the business credit reporting agency to dispute and start an investigation to remove any incorrect information. This is important because unlike personal credit, there are fewer legal protections for business credit. Consumer credit laws allow individuals to challenge anything on their credit report to have incorrect negative entries removed. No such laws exist for business credit – so you could have a harder time having incorrect information removed.

It’s much easier to get a free copy of a personal credit report than a business credit report. Business credit bureaus often charge fees to access your business credit report. You may be able to access free business credit reports from services such as Nav, a credit monitoring company.

What is a good business credit score?

Business credit scores can vary depending on the business credit bureau and credit score type. Typically, “good” credit scores indicate that your business would pose low risk to a creditor or lender. These scores are usually the higher numbers of the range.

A comparison graph for several credit bureaus

It’s important to know that each lender is going to use their own rubric to decide when to grant credit. The business credit scores and reports pulled will vary from lender to lender. The SBA uses FICO SBSS, and the minimum score to pass the SBA’s pre-screen process is currently 155. But most SBA lenders set their minimum score at 160-165. It’s crucial to build credit and know your business credit scores to ensure it’s healthy before you need it.

How to build better business credit – a checklist

Generally speaking, it can be easier to improve a credit score for a business than it is for an individual. Here’s a checklist of actions you can take that can help you improve your credit score.

  • Check your business credit score
  • Pay your bills – early, if you can
  • Lower your credit utilization ratio
  • Add positive payment experiences
  • Have conversations with creditors
  • Dispute errors and hard inquiries
  • “Pay for delete”
  • Keep accounts open

Check your business credit score
Knowing your score can let you know where you are and where you can improve. Learn what accounts or potential errors are negatively impacting your score so you can work to improve or dispute the information.

Pay your bills – early, if you can
This may sound simple, but the most important thing you can do to improve your business’s credit is to create a positive payment history. Some credit scores are almost exclusively calculated using payment history. If you’re not paying your bills on time, any other credit-building measures you take will be moot. Not paying your bills on time brands you as a debt risk. Paying on time is important, but paying bills early is even better.

Lower your credit utilization ratio
Keeping the amount of credit you use to under 15% can boost your credit score. You can do this by paying off credit card balances, increasing your credit limit, opening a new line of credit, paying your bills more than once a month or even simply using your credit card less.

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Add positive payment experiences
If you have a good payment history with certain vendors or suppliers, ask to establish a credit account with them. Additionally, if you know certain vendors don’t report, you can add trade references to your report. These actions can increase your number of positive payments on your credit report.

Have conversations with creditors
If your business struggles with accounts payable, it can affect paying vendors or suppliers. If you’re having a hard time with clients paying, talk to your creditors to try to get ahead of the issue. Talking with creditors about your situation in good faith may help you work out a payment plan or agreement to avoid late payments being added to your credit report.

If you notice errors or something that shouldn’t be in your credit report, call to dispute it. Too many “hard” credit inquiries or unpaid accounts can affect your report.

Dispute errors and hard inquiries
If you notice errors or something that shouldn’t be in your credit report, call to dispute it. Too many “hard” credit inquiries (we’ll cover hard vs. soft inquiries below) or unpaid accounts can affect your report. You can work with credit card companies and the credit bureaus to correct information so that your report is as accurate as it can be.

“Pay for delete”
Should any of your accounts go to collections, make sure the collections agency will delete the negative account from your credit report. This is called “pay for delete,” and you have to explicitly ask that they remove the account from your business credit report. Otherwise, your report will still show the negative account – and paying the collections agency won’t benefit your business at all.

Keep accounts open
If you’re no longer using an account or credit card, it may feel tempting to cancel them. Don’t do this. Showing a mix of accounts is important. Plus, closing accounts can have a negative impact on your score.

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How to maintain a good business credit score

The old adage “if it ain’t broke, don’t fix it” doesn’t exactly apply when trying to maintain a good credit score. Keeping up with responsible actions such as paying bills early or on time and keeping accounts open never go out of style. However, actions that you may need to do to grow your business, such as shopping for a business loan, can negatively impact your business credit score. How can you maintain the good score you’ve worked hard to build and access funding you need for your business?

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Know the difference between credit checks
Not every credit check hurts your business credit score. “Soft” credit checks, such as those that happen during background checks, reviewing your own business credit score, do not affect your business’s credit. “Hard” credit checks or inquiries are the checks that a creditor uses to make a lending decision; these checks hit your credit. Just one extra credit inquiry will cause a credit score to go down by five points, according to FICO. If your business shows a high number of hard credit inquiries, it can indicate that lending to your business is risky.

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Shop for loans wisely
Shopping smart for a loan is crucial. It may seem smart to shop around and apply for multiple loans with different lenders to see what loan terms and interest rates are out there for your business. If you don’t know whether the lender will do a hard or soft pull of your credit, use caution. Those multiple credit pulls could harm your credit and make the terms you ultimately get worse than when you started your loan search. What if there was a way to shop around for a loan using only a soft credit pull to start? Hint, there is. Read down below for the details.

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Build good business credit practices into the core of your small business

Now that you understand the importance of having good business credit, how to establish it and then keep your score up, you can take action. Making your business credit a priority can help you meet short-term and long-term goals for your business. You could include credit-building strategies into a business plan (which you may need to provide for many loan types, FYI). No matter if you need funding now or in the future, good credit practices are a great foundation to help make your small business a success.

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All your funding needs with none of the headaches

If you found your way to this article because you’re learning about business credit due to your financial needs, we have good news for you. Heartland can help!

Heartland Capital, powered by Lendio, offers an easier and faster way for small businesses to secure the funding they need to operate and grow. Our business loan marketplace enables business owners to apply for loan amounts up to $5M and access a line of credit up to $250K. Business owners can get secure, easy access to the financial boost they need to focus on what they do best with only a soft credit pull to start. After an application, the marketplace canvasses the lending marketplace to provide entrepreneurs with competitive loan options, rates and terms. A hard credit pull is completed after you’ve selected the loan you want to go with, so your credit score is only impacted once.

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With Lendio, the entire lending process is streamlined. The application-to-funding process is easy and the entire process typically takes about a week. Small business owners just need to follow these steps:

  1. Apply for financing directly on the Heartland Capital website

  2. Work with a dedicated funding advisor to discuss your business needs and loan options

  3. Receive an email notification with competitive funding offers for your business

  4. Sign and accept your electronic loan documents

  5. Get your money as fast as 24 hours from selecting an offer


Nearly 1,000,000 entrepreneurs trust Heartland to provide the technology to run and grow sustainable businesses––technology to make money, move money, manage employees, and engage customers. We develop tools to help entrepreneurs respond to market changes and stay competitive. We know it’s not enough to just look good and have fancy features. That’s why Heartland delivers human-tech across all of our solutions, service, and support. All designed to help entrepreneurs overcome the challenges encountered every day. Learn more at heartland.us.