As a business owner, building strong business credit is essential to your company’s financial health. It can help you secure loans, obtain better financing options, and establish credibility with suppliers and partners. However, if you don't have a solid personal credit history, building business credit can be more difficult. But don’t worry—I'm here to guide you through the process, sharing my own experience and the lessons I've learned along the way.
Why Business Credit Matters
Business credit is the financial reputation of your business. It’s separate from your personal credit, but it’s just as important when it comes to securing funding or applying for business credit cards. Strong business credit allows your business to:
- Access financing, loans, and business lines of credit
- Establish relationships with suppliers who may offer better payment terms
- Protect your personal credit by separating business and personal expenses
- Build a strong reputation that can help your business grow and thrive
That said, personal credit plays a significant role in building business credit—especially when you’re just starting out. If you don't have good personal credit, you may find it challenging to qualify for business credit cards or loans.
If you are struggling with your personal credit score and want to learn how to fix it on your own, you can get my brand new e-Book where I teach you how to do this on your own with no need to hire an expert or give up on the dream of having a great credit score. You cand find the E-Book here.
In some cases, lenders may require a personal guarantee, meaning that if the business fails to repay, the responsibility falls on you. Even though business credit is meant to be separate, it's important to be aware that some business credit cards and financial products report to your personal credit, which means anything you do with your business credit—good or bad—could affect your personal credit score.
For example, I’ve had the opportunity to apply for a few business credit cards, and I’ve noticed a significant difference in how they report to my personal credit. The Truist Bank business credit card is a great option because it doesn’t report to my personal credit, so my business transactions don't affect my personal score. On the other hand, most other business cards I’ve applied for do report to my personal credit, which is something to keep in mind as it can impact my overall credit score, including utilization ratios and credit limits.
Step 1: Get Your Personal Credit in Order
Before applying for any business credit, make sure your personal credit score is in a good place. Most lenders will look at your personal credit as part of the approval process, and if it’s too low, it will be difficult to get approved for business credit cards or loans.
If you’re just starting your credit journey, take the time to repair your personal credit first by:
- Reviewing your credit report for errors (check for late payments, collections, or inaccuracies)
- Paying off outstanding debts
- Reducing credit card balances to lower your credit utilization
- Making timely payments on all accounts
Having a good personal credit score is crucial because it not only helps you secure business credit but also ensures you get better terms and lower interest rates when you do apply for financing.
If you are struggling with your personal credit score and want to learn how to fix it on your own, you can get my brand new e-Book where I teach you how to do this on your own with no need to hire an expert or give up on the dream of having a great credit score. You cand find the E-Book here.
Step 2: Register Your Business
The first step to building business credit is officially registering your business. This step helps create a legal entity for your company, which is necessary for separating your personal and business finances.
Make sure you:
- Register your business with the appropriate state agency (depending on your location, this could be a Secretary of State or a local business registry)
- Obtain an Employer Identification Number (EIN) from the IRS (this serves as your business’s social security number)
- Set up a business bank account to separate business and personal expenses
Once your business is registered, you can begin to apply for business credit, but keep in mind that some business credit cards and loans require a DUNS Number.
Step 3: Get Your D-U-N-S Number
A D-U-N-S Number is a unique nine-digit identifier used to track your business's credit history. It's issued by Dun & Bradstreet, a company that provides credit reports for businesses.
Having a D-U-N-S number can help your business establish a credit profile, and many creditors and lenders will look for it when determining whether to approve your application. You can apply for your D-U-N-S Number for free through the Dun & Bradstreet website, and the approval process can take up to 30 days, so it's important to get this step done as early as possible.
Step 4: Apply for Business Credit Cards and Loans
Once your business is registered and you’ve obtained your D-U-N-S Number, you’re ready to apply for business credit cards and loans. Keep in mind that most business credit cards and loans will either require a personal guarantee or will report to your personal credit (especially when you’re just starting out).
Here are some things to consider when applying for business credit:
- Choose cards that match your business needs: Some business credit cards are best for earning rewards, while others offer low-interest rates or help build business credit faster. Make sure to choose one that aligns with your company’s financial goals.
- Understand which cards report to personal credit: As I mentioned earlier, most business credit cards do report to your personal credit score. If this isn’t ideal for your situation, look for cards like Truist Bank, which don’t report to your personal credit.
- Start small: If you’re a new business owner, consider starting with a secured business credit card. These cards require a deposit upfront, but they can help you establish a credit history without taking on too much risk.
Additional Considerations for Startup Business Loans
When it comes to securing a startup business loan, there are some key elements that many resources overlook. Having a good credit score is just one part of the equation, but income is just as important, and this is often left out of the discussion in many articles and videos about business loans.
Here’s the reality: it’s not enough to simply have a solid business plan and a good credit score to qualify for a startup loan. Lenders want to see proof that you can repay the loan, even if your business isn’t profitable yet. This means they will likely require some form of income to show that you are capable of making monthly payments, whether that comes from another job, personal assets, or a cosigner/guarantor.
Proof of Income for Startup Loans
If you are unemployed or don’t have income coming from your business just yet, you’ll need to show alternative sources of income to prove that you can manage the responsibility of the loan. This might include:
- A cosigner or guarantor: Some lenders may require a cosigner who can take on the responsibility of the loan if your business fails. This is someone with strong credit and a stable financial situation who will back you up if your business doesn’t meet its obligations.
- Proof that your business is making money: Even if you are just starting out, showing that your business has some sort of revenue stream or customer base can help prove to lenders that you are capable of generating enough income to cover the loan payments.
- Some sort of additional income: This could be disability, social security, or some kind of additional income that you receive while you are unemployed.
I’ve seen many articles and videos online promoting the idea that you can get a startup loan by simply presenting a business plan, but this isn’t the whole story. Lenders need to know that they can rely on your ability to make payments if the business doesn’t take off as quickly as you expect. Without a source of income or a solid plan for generating income, it's going to be very difficult to secure a loan.
Step 5: Pay Your Bills on Time and Keep Balances Low
Once you start using business credit cards, it’s crucial to pay your bills on time and keep your balances low. Credit utilization plays a huge role in your business credit score—just like it does with your personal credit. Keeping your balances under 30% of your credit limit will help you build your business credit and improve your credit score over time.
If you ever need to adjust or modify your payment plan, negotiate with your creditors to see if they can extend your credit limits or offer lower interest rates. This can help you improve your overall business credit utilization ratio.
Step 6: Monitor Your Business Credit
Just like you monitor your personal credit, it’s essential to keep an eye on your business credit as well. You can monitor your business credit score through services like Nav or Dun & Bradstreet, which provide reports and updates on your business credit standing. Regular monitoring helps you catch any errors or issues early on so you can address them before they affect your ability to obtain credit.
Conclusion: Take Control of Your Business Credit Journey
Building business credit isn’t something that happens overnight—it takes time, effort, and diligence. But if you start with a solid personal credit foundation, register your business, and follow the steps above, you’ll be well on your way to establishing strong business credit that will open doors for future growth.
I’m not a financial advisor, but these are the steps I’ve taken in my own journey to build business credit. Remember that everyone’s situation is unique, so always do your own research and consult with professionals when necessary.
And if you’re new to business credit or looking for additional resources, be sure to check out my eBook on fixing your credit. It covers some of the foundational steps that will help you improve both your personal and business credit scores.
Building business credit is within your reach—it just takes a little patience and a whole lot of smart planning. Best of luck with your business journey!
Have a blessed day and stay kind. 🫶🏽
-Coach Heidy
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