How to build business credit: A guide for small business owners.

For small businesses, building strong business credit is a cornerstone of sustainable growth. While your personal credit affects individual borrowing, your business credit determines how lenders, suppliers and financial partners view your company’s financial reliability.

A solid business credit profile can help you access more favorable loan terms and higher credit limits, which can give your business the flexibility to manage cash flow effectively. “The stronger your business credit score, the more likely you are to get approval for financing,” said Annastacia Bushman, senior underwriter in Commerce Bank’s Small Business Banking division.

For many small business owners who are just starting out, understanding how business credit works can feel complex. From establishing your company legally and opening the right accounts to monitoring your score and leveraging credit for financing, every step of the process matters.

In this guide, we cover what business credit is, what you can do to establish and strengthen it, the mistakes to avoid, and how working with Commerce Bank can help you leverage your credit to help fuel your company’s growth.

What is business credit?

Business credit is a financial profile that reflects how reliably your company manages its financial obligations. For small business owners, business credit works a lot like personal credit, but it’s tied to the company rather than the individual owner.

Lenders, suppliers and other financial partners use this profile to evaluate how much risk a business presents and whether it’s likely to repay borrowed funds on time.

When a business applies for financing or seeks payment terms from a supplier, financial institutions typically review several indicators of creditworthiness, said Bushman. “Business credit is very similar to personal credit in that we’re looking at similar markers such as payment behavior, delinquency indicators, credit utilization and public records.”

“We want to see that your business is making payments on time for loans, leases and accounts payable, and that your business lines and credit cards are not constantly maxed out. We also want to see that you don’t have any negative public records, such as bankruptcies, lawsuits or other negative judgments,” she said.

Warning signs such as maxed-out credit cards or tax liens can signal financial instability and may make lenders more cautious about extending credit.

Beyond payment behavior, lenders often consider broader factors that help provide context for a company’s financial stability. For example, the length of time a business has been operating can influence how it’s evaluated. Businesses that have survived beyond the early, high-risk startup years may appear more stable than newly formed companies. Industry can also play a role, as businesses operating in relatively steady sectors may be viewed as lower risk than those in highly volatile sectors.

Over time, businesses can continue to strengthen their credit profiles by demonstrating consistent, responsible financial management. This includes paying bills on time, managing credit carefully, and maintaining a stable operating track record.

Why business credit matters for small business financing.

Building strong business credit can make it easier and more affordable for your business to borrow money when you need it. Just like with your personal credit, a strong business credit profile can signal to lenders that you’re a lower-risk borrower. This can improve your chances of approval as well as the lending terms you’re offered.

A strong business credit score can help you qualify for financing, negotiate better interest rates and repayment terms, and access larger lines of credit or bigger loans as your company grows.

“Your business credit score and history is only one metric out of many that we look at in the underwriting process,” Bushman said. Lenders also look at how long you’ve been in business, the industry you operate in, your business’s financial performance, and even your personal credit — especially if you’re just starting out.

While a strong business credit profile is beneficial, it’s important to keep in mind that it can’t fully offset weak fundamentals elsewhere in your application.

The steps to establishing business credit.

If you’re just getting started with a small business, you may want to consider a few early steps that can help set the foundation for building business credit:

• Incorporate your business: Make your business a legal entity by forming an LLC or corporation. This creates a legal separation between your personal finances and your business’s finances. Sole proprietors and general partnerships may have difficulty building a fully separate business credit identity.
• Get an EIN: An employer identification number (EIN) is like a Social Security number for your business. This free, nine-digit tax ID is issued by the IRS opens in a new window and is required to open a business bank account, apply for business credit and file business taxes.
• Apply for a D-U-N-S Number: Dun & Bradstreet — one of the three main reporting agencies for business credit reports and scores — will issue you a unique 9-digit business identification number opens in a new window separate from your EIN. Lenders and potential business partners will use the D-U-N-S Number to help determine the reliability and financial stability of your company.

How to build your business credit history.

Establishing business credit is less about one big move and more about building a relationship with a bank and showing, over time, that your business is able to handle debt responsibly. Here are some key steps small business owners can take to establish business credit:

Open a business bank account.

One of the first steps is to open business deposit accounts and begin running your financial activity through them. This helps your financial institution see how your business operates day-to-day and gives them a clearer picture when you eventually apply for financing.

Lenders also want to see that you’re personally invested in your company’s success. “Opening a deposit account for your business and injecting some of your personal equity into your company is an important step that shows us that you’re fully committed to your business,” Bushman said.

Use credit early to start building your history.

It can be tempting to avoid debt altogether and pay for all your expenses in cash. But if you’re not using credit, you’re not taking the first step toward building a strong credit history.

“If you finance everything in your business with cash, that will also deplete your liquidity,” Bushman said. You can start to build your credit history slowly and begin to demonstrate responsible borrowing by using credit for startup costs and manageable, short-term needs.

Since new businesses are riskier for lenders, it’s a good idea to begin with smaller obligations such as a small term loan, a business credit card, or a modest line of credit that fits your current cash flow rather than immediately applying for a large loan.

“The goal is to start to create a track record of on-time payments and responsible utilization,” Bushman said.

Strengthen your overall financial picture.

Because startups and small businesses don’t yet have a deep business history, lenders often lean more heavily on outside strengths when making lending decisions. These factors include strong personal income, a guarantor with strong outside income and healthy personal credit, and manageable personal debt levels.

“If you’re a new business that has these other strengths in your overall credit picture, it’s a good way to bolster your credit package for a higher rate of approval, which will help you slowly build up your business credit score,” Bushman said.

Mistakes to avoid when building business credit.

While building business credit is important, the way you build it also matters. Certain missteps can leave you paying far more than you should, and could even put your company at financial risk. Here’s what small businesses should avoid when trying to build business credit:

Don’t rely on quick, high-interest financing.

When you’re just starting out, it can be tempting to say yes to any lender willing to approve you, especially if they’re promising same-day funding or “no questions asked” approvals. But many of these offers come from unregulated lenders and carry extremely high interest rates.

“Unregulated institutions might say that they can get you a loan the same day, but the interest rate could end up being as high as 50% or 60%,” Bushman said. “If you sacrifice your payment ability in order to try to build credit, you can quickly become overextended.”

Avoid maxing out business credit cards and lines.

While using credit is necessary to begin building a credit history, maxing out your cards or lines of credit on a regular basis is a red flag. High utilization makes you look riskier to lenders and can drag down your business credit score.

If you need to rely heavily on a line of credit, plan to pay it down regularly so you’re not always sitting at or near the limit. Try to use less than 30% of your available credit. This demonstrates your ability to manage debt responsibly, which makes you a lower credit risk.

“Making sure that you’re not constantly maxing out your lines or cards is what’s going to help drive up your business credit score,” Bushman said.

Don’t open more revolving accounts than you need.

Opening multiple credit cards or lines that go largely unused can raise concerns for lenders. They typically want to see an active, well-managed credit profile rather than a collection of idle accounts. Part of maintaining strong business credit is reviewing your open accounts regularly and keeping only those that support your business’s needs.

Don’t ignore your personal credit.

For small businesses in particular, personal credit and business credit are often closely linked. Even if your business credit looks solid, weak personal credit can bring down your overall risk rating and make it harder to get financing approved.

“Make sure that you’re staying on top of your personal credit score, since that’s often heavily weighted in our lending decisions,” Bushman said.

Major personal borrowing can also work against your business. “For example, you don’t want to take out a million-dollar home mortgage loan right before you request financing for your startup business,” Bushman added.

How to check your business credit score: Monitoring and improving.

Once you’ve established business credit, you’ll want to monitor it regularly so you can keep your business credit profile strong and catch potential problems before they hurt your borrowing options.

The three main business credit reporting agencies are Dun & Bradstreet opens in a new window, Experian opens in a new window and Equifax opens in a new window, and each has its own way of scoring and reporting. Here are some pointers to keep in mind about monitoring your business credit:

Check your business credit at least quarterly.

A good rule of thumb is to review your business credit report and scores once every quarter, which lines up with how often lenders monitor their portfolios. Checking your company’s credit report is typically considered a “soft inquiry” and won’t affect your business credit score. Quarterly check-ins will help you confirm that payments are being reported accurately, spot negative changes early, and see whether efforts to improve credit are having an impact.

Look for what’s driving your score up or down.

When you review your credit, don’t just look at the score. Review the drivers behind it. Are there late payments or delinquencies showing up? Are there any balances higher than expected or close to the limit? Are there any unused accounts that might be negatively affecting your score?

“If there is something on the report that’s driving your score down, come up with a plan for how you’re going to resolve that issue,” Bushman said. For example, if you have several open credit cards that never get used, consider closing them.

Be patient about how fast changes show up.

Improvements don’t always appear in your score right away. Reporting timelines can vary, and not every lender reports to every business credit bureau. That means you might have to wait a cycle or two until you see the full impact of your actions.

Working with Commerce Bank: Which products help build credit fastest?

For small businesses that are looking for ways to build business credit, two products to consider are business credit cards and small business lines of credit.

• Business credit cards: Just as responsibly using a personal credit card can help you build a strong personal credit rating, using a credit card in your company’s name can help you establish and build business credit. Regularly using a business credit card and making on-time payments are effective ways to strengthen your credit profile so you’re better positioned to apply for loans. A business credit card is also one of the fastest ways for a new business to access funds. Loan approvals can take weeks or months. Once a business credit card is approved, it can be used quickly, which allows you to take advantage of timely opportunities and keep your business moving forward.
• Small business lines of credit: A line of credit is a flexible type of credit that provides access to money you can draw from and repay (with interest) repeatedly as needs arise. Businesses often use lines of credit to finance short-term operating expenses, such as capital for expansion, money for marketing and promotional campaigns, or adding staff. Because a line of credit enables you to show your ability to repay it over and over, it’s also another good way to demonstrate to lenders that you have a strong repayment history.

Once your small business has established a strong credit history by responsibly using these products, you’ll be in a better position to qualify for additional financing options down the road, including term loans and Small Business Administration (SBA) loans.

While strong business credit alone won’t guarantee financing approval, it can play an important role in a broader financial picture that supports your company’s long-term growth.