The Importance of Business Credit and How to Build It

Joseph Blackner , CRPC®, CPFA™

March 11, 2024

Credit is one of the most important factors of life that impacts all businesses. Having solid credit is necessary for securing a small business loan. Most lenders consider an acceptable business credit score of 75. The U.S. Small Business Administration published a study by the Native American Dream Gap which disclosed that 45% of small business owners surveyed didn’t know they had a business credit score, 72% didn’t know where to locate the information, and 82% didn’t know how to interpret their score. Taking steps to build business credit can offer your business opportunities that wouldn’t be available to otherwise.

The importance of building credit can’t be overstated. Here are a few strategies to consider to help build it:

Register your business

Registering your business establishes it as its own legal entity and provides better access to securing loans from banks and capital, which you can use to build business credit. Along with building a solid business credit score, registering your business also offers legal and tax benefits and helps you mitigate personal liability suits brought against you from any business dealings.

Open a business bank account

A business bank account can help to build a relationship and track record with the bank. This can be beneficial when you apply for a business credit card or a loan. Being an existing customer may help you to build your business credit.

Apply for a business credit card

Having a business credit card helps to establish your business’s credibility. If the payments are made on time, that also helps build your business credit and acquire a higher score. A business credit card also works to improve business cash flow and to obtain higher credit limits over time.

Borrow from lenders that report the payments to the business credit bureaus

Borrowing from lenders that report the payments to the major credit bureaus is beneficial as it helps to raise your business credit score and develops your creditworthiness.

Establish credit with suppliers and vendors

A quick way to build business credit is by applying for net terms with suppliers and vendors. For example, net 30 accounts allow you to buy now and pay later. The accounts extend you 30 days to pay in full after purchasing of a product. This type of practice is known as supplier credit, vendor credit, and trade credit. Suppliers and vendors then, in turn, report the payments made to the three major credit agencies, helping your company build a strong business credit score.

Regularly monitor your business credit report

There are three major credit reporting agencies, each compiling data about businesses, and it is essential to monitor your company’s credit report to ensure the information is accurate. The credit agencies allow you to update general information about your business. Sometimes, incorrect or outdated information makes its way onto your credit file, and you would want to contact the credit agency to dispute the information and request a revision to your report.

Consult a financial professional

Consider consulting a financial professional with experience in building business credit who can teach you strategies to raise your business's credit score while also providing guidance on creating manageable goals and financial projections based on decisions you make now.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.