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6 ways to help build business credit

Many business owners rely on credit ─ to get up and running, for working capital, and to help fund growth.

And in some ways, business credit reports are like consumer credit reports. Both business and consumer credit bureaus use a variety of metrics to determine the risk associated with providing financing based on your business credit history. But unlike consumer credit bureaus that use FICO as the standard measurement, business credit bureaus do not utilize a FICO score as their primary measurement tool.

If you’re looking to help build your business credit, check out these 6 ways to start building credit for your business.

How to help build business credit

Before we get into ways to help build your business credit, follow these steps to get your credit started:

  • Register your business in your state
  • Get an EIN number through the IRS

6 ways to help build business credit

Establishing business credit doesn’t have to be difficult. Let’s look at six steps you can take as a business owner that could potentially build your business credit.

Step 1: Pay your bills on time

This may sound 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 their 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 — so this may have an impact on your ability to build business credit.

Step 2: Start small to build credit

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 company that operates primarily in cash, build your business credit 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 help manage a cash flow gap. Plus, the longer you maintain a business credit history, the better for your overall business credit.

You can’t build business credit overnight. A long, positive track record of business banking can help establish business credit.

Step 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. Confirming your information is current may help cut down the risk of mistakes on your business credit report.

To that end, monitor business credit reports with major bureaus on a regular basis, and keep a close eye on potential errors.

Step 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. Remember that the way to reduce your credit utilization is by paying off existing debt — which is a key factor in building good business credit.

Step 5: Run your business professionally

While the following tips may not directly build your business credit, they may demonstrate business credibility when you’re applying for small business financing:

  • Separate personal and business bank accounts, and credit and expenses. Not only can drawing these clear lines of distinction help during tax time, but it may also help make your business look more credible to lenders.
  • Understand your finances. Have a strong grasp of cash flow and the financial health of your business.
  • Maintain your business website. A professional business website lends authority and legitimacy to your business.

Step 6: Consider a business loan

Applying for a business loan can help your business establish a good credit history and build up your business’ credit score. Ask yourself questions such as:

  • How much can your business comfortably afford to repay?
  • How fast do you need the business loan?
  • How long do you want to repay the business loan?
  • What would you use the loan proceeds for?

Help build business credit with PayPal

Now that you’re familiar with some ways to establish your business credit, you can keep a tab on 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 typically free.

For nearly 20 years, PayPal has been proud to be a partner and platform for merchants as they launch, scale, and grow. From providing access to fast funding to helping you get paid online, learn how our payment and credit solutions may help your business.

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