Small BusinessOperationsFunding

5 things you can do to help build business credit

PayPal Editorial Staff

PayPal Editorial Staff

January 15, 2019

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Many business owners rely on credit ─ to get up and running, for working capital, and to fund growth. And 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 financing 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 or bankruptcies
  • Industry risk

Who’s looking and why it matters.

Many lenders considering extending credit to your business, whether it’s a bank, online lender, vendor, or supplier, will want to know your business credit history. 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 could have a better chance of securing additional credit for your business.

How to build business credit.

Let’s look at 5 things you can do as a small business owner that could potentially build 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 could be reported to a credit bureau. When the credit bureaus assess business credit, they often consider 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. Establishing business history as soon as possible can help establish business credit. Even if you’re a small outfit that operates primarily in cash, build your business credit foundation early on. Then, if you find yourself in a situation where you need to secure additional financing, you’ll have a good foundation in place. Otherwise, you may not be prepared when it’s time for your business to start a new project or bridge an unexpected cash flow gap. Plus, the longer you maintain a business credit history the better for your overall business credit.

    Takeaway: You can’t build business credit overnight. A long, positive track record of business banking can help establish 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 business credit 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’s being used) can help you understand how much access to credit your business could have.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 small business professionally

    While the following tips may not directly build your business credit, they can demonstrate business credibility when you’re seeking credit for your business.

    • Separate personal and business bank accounts, credit and expenses: Not only will drawing these clear lines of distinction help you during tax time, it also helps make your business look more credible to lenders.
    • Know your financials: Have a strong grasp on cash flow and the financial health of your small business.
    • Maintain your business website: A professional business website lends authority and legitimacy to your business.
How to see your business credit report

Now that you’re familiar with how to establish your business credit, you can keep a tab on its progress by accessing your business credit report through a credit agency. You’ll need your business name or your DBA (Doing Business As) name. Just be ready for a fee because unlike personal credit reports, business credit reports are not free.

About PayPal for small businesses

For nearly 20 years, PayPal is proud to be a partner and platform for over 19 million merchants as they launch, scale and grow. From access to fast funding to getting paid online, learn how our payment and credit solutions can also help your business.

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