As a business owner, it is important to build up a credit history for your business, separate from your own personal credit history. When your business has an established credit history, it makes it easier to qualify for business loans and financing when you need it. Also, with a strong business credit score, you are more likely to qualify for low interest rates and favorable loan terms.
If your business is fairly new, you may be wondering how to go about building up its credit history. The good news is that there are several ways to establish and build your business’s credit score while securing financing at the same time. Here’s what you need to know:
What’s the Difference Between Business Credit and Personal Credit?
A business credit report represents your company’s history of making on-time payments and using credit responsibly. Although your business credit score is calculated similarly to your personal credit score, there are differences between personal and business credit.
First, your business credit report is public information. This means that anyone can review your company’s creditworthiness. Business credit scores typically have fewer variables than personal credit scores as well. This makes it somewhat easier to build or improve a business credit score compared to a personal credit score. Another thing to keep in mind is that there are more legal protections in place for personal credit than there currently are for business credit. This means that it can be harder to challenge discrepancies on a business credit report.
Establishing Credit History
Here are some things you can do to start building your business credit history:
• Start with your personal credit history. Although your personal credit report is indeed separate from your business credit report, having a strong personal credit score is essential to securing financing while you work on establishing a credit history for your business. So, if your personal credit score is low, you should work on improving it. Having a strong personal credit score can help you qualify for a business loan with a personal guarantee.
• Take out a business loan with a personal guarantee. If your business doesn’t qualify for financing on its own yet, you might consider applying for a business loan with a personal guarantee. If your own personal credit history is strong, you may increase your chances of being approved for a business loan if you personally guarantee it – in other words, if you agree to pay the loan back with your own funds if your business is unable to pay it back. A personal guarantee not only helps you secure the financing you need for your business, but successfully paying back a loan with a personal guarantee can help your business establish credit as well.
• Take out a business credit card. Taking out a business credit card and using it responsibly can help you build up a solid credit history in your business’s name. A business credit card can also help you to make necessary purchases for your business and free up cash flow for other expenses.
• Turn to a lender you have a relationship with. While it is certainly more difficult to get a business loan without your business having an established credit history, it’s not impossible. Your best bet is to establish a relationship with a local business banker. By using a specific financial institution for your business banking needs, you can start to build a relationship with your future lender. They can help guide you through the process and recommend business banking products and services to help your business establish a sound credit history.
If you’re a new business owner in MA or RI and looking for guidance as you establish your business and credit history, don’t hesitate to reach out. Our dedicated team of Business Banking experts is ready to assist. Whether you’re looking for a new business checking account, a business credit card, financing, or cash management solutions, BankFive is here to help.