How Long Does It Take to Build Business Credit?

Businesses, just like individuals, have credit scores that impact their ability to borrow money. Good credit makes it easier to borrow money at a low price. Bad credit can make it hard to secure loans and means paying higher interest rates.

Key Points:

• Businesses have credit scores distinct from the credit scores of their owners
• Business credit is impacted by factors similar to those that influence individual credit
• It’s important for your business to have good credit to secure low-cost loans

How Long Does It Take to Build Business Credit?

You can start building credit for your company in as little as a few months. However, many experts say that it takes as long as three years before you can establish a good credit rating for your business.

There are lots of things that influence your company’s credit rating, including its history of timely payments and its overall debt. It can take time to build a long enough payment history to show lenders that you’re trustworthy. Lenders also like to lend to established businesses that are less likely to fail than brand-new ones.

Why Business Credit Building Is Important

Building business credit is important for a few reasons.

Business Credit Increases Access to Financing

The obvious reason that having good business credit is important is that it makes it easier to qualify for loans. If your company has strong credit, you can access financing more easily which means you can expand more quickly.

Business Credit Can Lead to Better Loan Terms

On top of making financing easier to access, good business credit makes financing cheaper. Lenders charge lower rates to borrowers they see as less risky. With good credit, you can save money on your loans.

Business Credit Improves Vendor and Supplier Relationships 

Your vendors and suppliers will likely take a look at your credit when setting up payment agreements for the purchases you make. If you have strong credit, your suppliers will be less worried about you skipping out on an unpaid invoice. 
They may also be more willing to offer beneficial terms, such as giving you more time to pay or offering discounts for quick payments.

Business Credit Protects Your Personal Credit

Many lenders will ask for a personal guarantee on loans if your business has poor credit or a thin credit file. That means you take on personal responsibility for your company’s debts.

If you have good business credit, you can often avoid personal guarantee requirement, which protects your personal finances.

How to Get Started Building Your Business Credit Score

If you want to start building your business credit score, follow these steps.

Register Your Business

The first thing you should do is register your business. That means filing relevant paperwork with the state and federal governments, getting an Employer Identification Number, and otherwise making your business legitimate.

You can set up your company as an LLC, LLP, S-Corp, or C-Corp.

If you have a separate legal entity for your company that will help you start building credit.

Separate Expenses

Once you’ve formed a legal business entity, you should separate your company expenses from your personal finances. The best way to do this is to open a business checking account and move all of your business transactions to it.

Another important reason to separate your expenses is that some business structures require doing so. For example, mixing your finances after forming an LLC can mean losing the liability protections it offers.

Pay Bills On Time

The last thing you want when you’re trying to build credit is to do something that will damage your score right out of the gate. Make sure to keep a close eye on all of the bills your company receives and pay them on time.

Avoid Overdrafts

With your new business checking account, it’s essential that you avoid overdrafts. Overdrafts happen when you try to spend more money than you have in the account. If you overdraft, it can indicate to lenders that you aren’t responsible when tracking your business’s finances.

How to Speed Up the Business Credit Building Process

Building business credit can take years, but there are steps you can take to speed up the process.

1. Create a Separate Business Name

When you form and register your business, you should come up with a good legal name for it. Formalizing your company and making it its own entity can help you build credit for the business rather than having the business accounts show up on your own credit.

2. Apply for an Employer Identification Number (EIN)

An Employer Identification Number works a lot like a Social Security number for your business. You’ll need an EIN when you open a bank account or apply for loans in your business’s name. The sooner you get an EIN, the sooner you can start applying for accounts and building a credit report under your business’s name.

3. Offer a Proper Business Address

Home-based businesses are great when you’re just getting started but a business looks more serious and legitimate when it has its own office or business address. Setting up a proper address for your company can help make it distinct from you and ensure accounts show up on your business rather than personal credit.

4. Maintain a Separate Phone Line

A business phone line adds a layer of legitimacy to your company just like getting a separate business address. That can make it easier to get your first loans, which will help you build credit. 

5. Put Up a Business Website

Like a proper business address and phone line, a good website makes your company appear more professional and serious. On top of helping you find more clients, it can help you get your first loans and start building credit.

6. Have a Business Email Address

Your business email address is where you’ll be doing most of the communication for your company. You’ll want to set one up to make your business look serious. Avoid free email domains like Gmail or Yahoo. Host your own email on your business website’s domain.

7. Set Up a Business Bank Account

A business bank account is essential for any serious business. It’s also essential if you want to build credit. Most lenders will require that you have a separate bank account for your business activities. They may also look into how you’ve interacted with your bank account, such as looking for overdrafts, to see if you’re trustworthy as a borrower.

8. Get a D-U-N-S Number

Dun & Bradstreet is one of the major credit bureaus for business credit scores. A D-U-N-S number is a unique identifier that you can request for your company, and it is used in the company’s credit tracking process. 
Requesting a D-U-N-S number shows Dun & Bradstreet rating bureau that you’re starting a new business and will trigger the company to track your interactions with credit and generate a business credit score for you.

9. Work with Vendors Who Report

Building credit from nothing is one of the hardest things to do. Getting a loan with no credit is hard, but you can’t build a strong payment history without access to a loan. 
If you can, try to find vendors and suppliers who will report your payments to credit bureaus . Even if the vendors don’t offer long-term financing for purchases, simply having them report that you’re paying your bills can help you start filling out your company’s credit history.

10. Apply for a Business Loan or Credit Card

The sooner you apply and qualify for a loan or credit card, the sooner you can start building your company’s credit history. 
Apply for a business loan or credit card for your company and offer a personal guarantee if needed. This will help your company secure its first access to credit. As you make your monthly payments , you’ll start building your business’s credit score.