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How to build business credit for small businesses

by OnDeck Australia,   Jul 09, 2021

For many small businesses, taking out a loan is nothing unique and often necessary in the early stages of building a business. You might need some support to finance new products or machinery that will drive revenue or simply meeting short term goals. Whatever stage your business is in, having a good business credit score will help you to access higher levels of finance and grow your business.

Let’s have a look at the best methods on how to build business credit.

What is business credit?

Business credit, much like personal credit, represents what level of external financing your company will receive based on your financial history. It’s indicative of your ability to pay back credit which business credit bureaus carefully consider before making out a loan to your company. In simple terms, business credit refers to your company’s ability to buy something now and pay it back later. 

So why is that important? There are a number of benefits to building a good credit rating.

The process of receiving a loan becomes much easier

Lenders tend to be hesitant to lend money to businesses with poor credit history on the basis that a poor credit rating suggests an inability to repay debts. Conversely, a business with an excellent credit score will have no problem receiving a small business loan in a quick and easy fashion.

Better terms from suppliers

Suppliers that have confidence in your credit history will be much more likely to provide inventory and equipment on credit. This can be advantageous to business’s wanting to explore new product lines as a small inventory loan can provide you with the capital you need to invest in your new offerings.

With this in mind, let’s look at how to build business credit in your daily business operations.

Make it official: Separate your personal and business expenses

Consider this a fresh start. By registering your business as its own entity, you will have effectively separated your personal finances from that of your business. This will give you the freedom to open new cards and other lines of credit in your businesses’ name that will reduce your personal liability and minimise your tax liability. Beyond that, there are a number of other benefits in registering your business, including tax deductions and government grants that exist to help your small business grow.

Make repayments on time, all the time

This is an easy one to get right. Paying your bills and other debt obligations on time is one of the most significant factors in building a good credit rating. Obviously, not making repayments on time will harm your reputation through the lens of banks and lenders.

Reduce debt and credit utilisation

Eliminating debt is no easy task and won’t happen overnight. But there are a few things you can do to get your business on the right track.

Assess and rework your budget

Before you can start eliminating debt, you need a thorough understanding of your current financial position. Then you can assess how your budget is operating and ensure that all your costs are necessary from a performance perspective.

Reduce Costs

After carefully analysing your budget, identify outgoing expenses that you could do without. This could be a subscription to software that you aren’t utilising. It’s important to ask yourself which services and operations are directly necessary for your daily business operations and remove those that are not.

Keep credit utilisation low

Another step to take to build your business credit is to open up a new line of credit for your business. Whilst it may counter-intuitive, opening a new line of credit can increase your credit score. By increasing the line of credit available to your business, you will decrease your current credit usage ratio as a result.

Open Credit Accounts with your Suppliers

If you have a list of suppliers that you routinely engage with, then it’s worth asking to open credit accounts with them. This presents a good opportunity to build your business credit rating as a reliable history of paying back your suppliers will be recorded in your business credit report. Consequentially increasing your business credit score

Regularly check your business credit score

Keeping a watchful eye on your business credit score is crucial in maintaining a strong business credit score. If you should see a dip in your credit rating, then you need to act fast and take the right actions to rectify it. Checking your credit score with a bank or lender might seem like a dubious task, but OnDeck allows you to check your credit score for free with no trace or footprint.

Now that you have a better understanding of how to build business credit, the next eventual step is to take out a small loan. At OnDeck, we provide business loans for amounts between $10,000 to $250,000 on 6-24 months terms. Enjoy an easy application process with low loan origination fees of only 3%.

Frequently Asked Questions

What’s the difference between business credit and personal credit?

The difference between business credit and personal credit comes down to what body your financial history is tied to. Your business’s financial history is attached to your EIN (employer identification number), whereas your personal spending history is attached to your social security number. Because your business and personal financial history are distinct, your business and personal credit score are calculated differently, and unless you are a sole trader, your business credit score shouldn’t have an impact on your personal credit score.

Another key point of difference between personal credit and business credit is the legal protections that apply. In short, your personal credit history is protected by legislation that would allow you to challenge any transactions that appear on your report. Unfortunately, these laws don’t apply to business credit reports. Although you can challenge any inaccurate reporting that might appear on your business credit report, the issuing body has no legal obligation to respond.

How can I build my business credit fast?

Building business credit won’t happen overnight, but there are routine steps you can take to ensure that you’re on the right trajectory. Paying your bills, opening credit accounts with suppliers and extending new lines of credit are the best methods of boosting your business credit rating with emphasis on timely payments month on month.

How do I build credit for my LLC?

Opening a business credit card is a good start. You need to open accounts with companies that report to the business credit bureaus to record your credit history. By regularly paying your credit card bills in full, your credit score will increase.

How long does it take to build business credit?

Building business credit is not going to happen overnight, and some industry experts say it can take up to 3 years. How long it actually takes to build your business credit to a desirable level depends on what your goals are and how well you manage your debt obligations.

Does an LLC have its own credit score?

Yes. A notable perk that comes with registering your company as an LLC is that you will separate your personal and business credit scores. This is beneficial for several reasons, but most importantly, registering your business will significantly reduce your personal liability should your business face insolvency.


Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at July 2021. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

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