A Field Guide to Establishing Startup Creditworthiness

Funding a business comes with several challenges, especially if your personal credit score is below 630. However, most startups can still establish creditworthiness for a business with bad credit. Credit score aside, building business credit for your startup is a lot like building personal credit.

5-Step Guide to Establishing Trade Credit for Startups

If you want to establish business credit for your startup, you have many options. In this 5-step guide, we’ll show you how to go from a low (or zero) credit score to an outstanding one.

Step 1: Run a business and open a business bank account

If you are a sole proprietor or manage an LLC, C corp or S corp, you can open a business bank account. If you don’t have established business credit, banks will review your banking history before opening a new account. They generally won’t check your score or your personal credit report.

Now that you have this account, you can start building credit and financing your small business. Don’t forget to connect a credit monitoring app to your business account, as this will help you track your credit score. Finally, never use a business account for personal purchases.

Step 2: Use your business bank account responsibly

A business bank account gives business owners the ability to build credit as long as they manage their finances responsibly. Make sure you don’t overdraw your accounts or write checks when you don’t have enough funds. Use this account to make regular payments and deposits.

If you have a low personal credit score, you can still establish business credit with a secured loan or credit card. In 6 months, lenders will not assess your business creditworthiness based on your personal accounts. From there, you can use your business credit score to apply for loans.

Step 3: Get a low-limit credit card or business loan

To boost your credit score as quickly as possible, apply for a low-limit business credit card. Even if you have fantastic personal credit, you should never increase your credit card limit to an unaffordable level. If you can comfortably pay a balance of $500 each month, go no higher.

Remember: a business card should only pay for business purchases and low-cost items. $300 content marketing project would be appropriate for a credit card. A lower limit gives you more leeway to repay all fees, allowing you to continue to build your credit score safely.

Step 4: Establish a credit history and comply with taxes

The big three business lending companies, Experian, Equifax and Dun & Bradstreet, use a slightly different scoring method. All three use a 0 to 100 scoring method. The ideal score is 20 to 30you’ll get if you pay your bills on time, reduce your debt and avoid legal hassle.

Keep in mind that the corporate credit reporting system still uses many of the same personal credit factors to assess creditworthiness. For example, if you don’t track your tax payments, the IRS could report this to your personal and business credit bureaus, so be very careful here.

Step 5: Build your credit portfolio as your business grows

The last step in establishing creditworthiness is consistency. Make sure you maintain a good personal relationship and business credit rating as your business grows. At some point, your success may exceed your finances, which is the best time to lend money that you can’t pay back right away.

Seasonal business loans, term loans, business lines of credit, and installment loans are available for startups (and with low interest) if you have a decent credit score. Expanding your credit portfolio will help you build your credit, as long as you don’t take on too much debt.

Kayleen C. Rice