Many businesses rely on credit ─ to get up and running, for working capital, and to fund growth.

As you build business credit and secure funding based on your business performance, you might find you become less and less able to rely on your personal credit for funding your business.

Your Business Credit Report

In some ways, business credit reports are like personal credit reports. Credit bureaus use a variety of metrics to determine the risk associated with providing funds based on your business credit history. But unlike personal credit bureaus that use FICO as the standard measurement, business credit bureaus do not have a standard measurement.

Even so, the primary contributing factors to a business credit report include:

  • On-time payments
  • Credit utilization rate
  • Past collections/bankruptcies
  • Industry risk

For more information on how your business credit report can be used to review and evaluate your business, see our guide for navigating your business credit report.

Who is Looking and Why Does It Matter

Anyone considering extending credit to your business, whether it’s a bank, online lender, vendor, or supplier, will want to know your business credit history.

What are they looking for? They’re hoping to determine whether you have a history of making payments on time. Your business credit report is basically your track record, and with a solid one, you will have a better chance of securing additional credit for working capital when needed.

Improving Your Business Credit

Let’s look at 5 things you can do as a business owner that could potentially boost your business credit.

1. Pay your bills on time

This sounds like common sense, but many businesses will put off paying bills until the last possible moment, often waiting until after the due date to make cash flow work. Even if there is a period before your debt is sent to a collection team, late payments might be reported to a credit bureau. When the credit bureaus assess business credit, they take points away for late payments

Takeaway: Paying bills on time is worth the effort.

2. Start small and build

The sooner you start building your business credit the better. As we learned talking to contractors, an important segment of small businesses, it’s critical to start establishing business banking history and business credit as soon as possible. Even if you’re a small outfit that operates primarily in cash, start building your business credit foundation early on. Then, if you find yourself in a situation where you need to secure additional working capital, you will have a good foundation in place.

Otherwise, you won’t be prepared when you need to start a new project or bridge an unexpected gap. Plus, the longer you maintain a business credit history the better for your overall business credit.

Takeaway: Business credit isn’t built overnight. A longer track record will have a positive impact on your business credit.

3. Keep your records up to date

If you move to a new location or set up a new office, make sure to update relevant financial institutions as well as your vendors and suppliers. Making sure that your information is current will help cut down the risk of mistakes on your business credit report.

Takeaway: Monitor reports with major bureaus on a regular basis and keep contact information up to date.

4. Pay down existing debt

Your credit utilization rate (which is the percentage of your credit that is being used) can help you understand how much credit you have and if you are close to being overextended. To calculate your credit utilization, divide your current balances by your credit limits, and multiply by 100 to turn into a percentage.

Takeaway: Reduce your credit utilization by paying off existing debt.

5. Run your business professionally

While the following tips may not directly affect your business credit, they can demonstrate business credibility when you are seeking credit for working capital.

  • Separate personal and business: Make sure you separate business and personal bank accounts, credit, and expenses.
  • Know your financials: Have a strong grasp on cash flow and the financial health of your business.
  • Maintain your business website: A professional business website lends authority and legitimacy to your business.

And finally, consider incorporating your business. When you formally establish your business as a separate legal entity, your federal employer identification number (EIN) provides an identifier for your business.

Understanding how to build and boost your business credit will help you make smart credit decisions for your small business.

Our mission at Swift Capital is to unleash the potential of every small business by providing them with fair and convenient access to working capital. We harness data and technology alongside personalized human expertise to see the true potential in every business. Did you like this post? Tell us what you’d like to see on our blog. Email us at [email protected]


About Author