How to Build Business Credit as a Small Business Owner

By Anne Shaw
The Hartford Small Biz Ahead | Originally published June 14, 2021
Updated: August 22, 2022

When now-retired entrepreneur Larry Goodrich and his two partners started a small business, they were surprised to find it difficult to get a business line of credit. All three partners had impeccable credit ratings. They’d owned homes and dealt with the same financial institution for decades. So, they thought receiving business credit would be a slam dunk. But it turns out that business financing is a horse of a different color.

Credit isn’t the only way to fund a new business. In fact, the U.S. Small Business Administration (SBA) offers small business grants for start-ups and growing companies. But, there are strict rules about applying and qualifying for these funds. Many are also limited to specific industries or types of businesses. Some are only slotted for niche industries like biotech or “green” businesses, or women-, minority- or veteran-owned businesses. Even small non-profit organizations make the list. But many companies, like Goodrich’s, simply don’t fall into these categories. So, learning how to build business credit is crucial for many small business owners, especially if they want access to funds they can pay back over time.

What Is Business Credit?

The first thing to keep in mind is that small business credit is not the same as personal credit. Personal credit lenders offer credit cards and loans to individuals. They rely on three main credit bureaus and a wide range of credit scores, including FICO and VantageScore. In fact, they can use more than 1,000 types of credit scores to determine creditworthiness. Your individual credit rating depends on factors linked to personal wealth.

Business credit is tracked by your company’s Employer Identification Number (EIN), also known as your Tax Identification Number. Specialized reporting firms like Dun & Bradstreet monitor small business credit. So, you might hear about a “D&B” rating when seeking small business financing. Factors included in a D&B rating include your business’s overall risk, the potential for bankruptcy and how quickly you pay off your credit balances. If your company has higher risks, your D&B rating could make it harder to get business credit. Notice that your personal FICO score is not listed as relevant to determining your business’s creditworthiness.

Why Should I Establish Business Credit?

Don’t be tempted to use personal credit to finance your business. Experts say it’s important to keep your personal credit and business credit separate. Putting personal assets like your home on the line to guarantee a business loan can be devastating if things take a wrong turn.

A strong D&B business credit rating is vital. Lenders, suppliers, insurers and even your customers use it to decide whether to do business with your company. Let’s explore how to establish business credit as efficiently as possible.

Some companies help build business credit. For instance, those that allow you to purchase items or services with a net-30 account. Let’s say you open a net-30 account with a company that sells office supplies to small businesses. This means that the vendor gives you a line of credit for 30 days. They will front you the merchandise or services you need, but you don’t have to pay until after an invoice is issued or a shipment is made. Many of these vendors report transactional information to D&B, which will help you begin building your business credit record.

Once you’ve begun establishing business credit, it will be even easier for you to separate your personal finances from your business…[MORE]

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To read the entire article by Anne Shaw at The Hartford Small Biz Ahead website , visit: How to Build Business Credit as a Small Business Owner