How to Build Business Credit and Gain Access to Capital

Nov 30, 2021

Capital is part of a growing small business’s journey. Mission-based lenders, like us, are ready to take measured risks on small businesses with less history. But if you can show promising business credit, and provide credit history, you will have an easier time getting approved and qualify for lower rates and better terms.

Why is credit history important?

Lenders are businesses too, and they only stay open if they are paid back. So, who have you paid back? Credit history shows a lender that they can expect you to make your payments on the loan you have asked for. As much as they would like to take you on your word, they’re going to need numbers.

First Step for Sole Proprietors: Separate Your Business Credit From Your Personal Credit

If you are a sole proprietor, you and your business are one and the same, legally. If you register your business as an LLC, LLP or corporation, it becomes its own entity separate from you. Its credit will become separate from your personal credit.

If you plan on growing your business, consider taking this step now. Visit the U.S. Small Business Administration to learn which type of entity is right for your business as it grows.

Start Building Credit History With a DUNS Number

Before you start the process of building business credit, you need to make sure your credit activities will be counted. Register for a Dun & Bradstreet number (DUNS number) to get started.

A DUNS number is not the same as an EIN. An EIN is a tax identification issued by the IRS. DUNS numbers are used to track business credit, not income. They are not required, so many startups and small businesses don’t register for one.

Register for one.

Start Small and Pay Your Bills

Not many small business owners know this, but lenders come in levels you navigate through, a lot like school. Much like when you’re building a network of business relationships, you start small and work your way up.

Start with a business credit card with a low limit. Use it for small amounts, and pay your bill. Every paid bill is a step up the business credit ladder. A late or unpaid bill on your credit history takes a very long time to recover from, so don’t rush into swiping your card. At first, use it for a few everyday things you buy anyway, not large purchases. This will help you stay within your current budget.

Important note: Predatory lenders make money by giving small business owners with poor or non-existent credit high limits with high interest rates they can’t afford to pay off. Don’t apply for your business credit card from an ad you receive in the mail, in your email, on social media just because they make big promises and sound legit.

Graduate to Microlenders and CDFIs

If lenders come in levels, the first few years of a business’s life are spent in the lower levels. The next step after your business credit card is a microloan. Microloans can go as high as $50,000 but are typically around $10-13,000.

Community Development Financial Institutions (CDFIs) are supported by the federal government’s CDFI Fund and can loan in amounts up to $250,000. Because their mission is community building, CDFIs are welcoming to businesses in low-income and underserved communities.

CDFIs like Lendistry are supported by banks and can lend in smaller amounts from $50K to $5M.

When you grow past that amount, you move on to Small Business Investment Companies (SBICs), which are a step below large banks and loan in amounts from $5M-$25M.

Building business credit history is a long game. It doesn’t happen quickly, and small setbacks have a long-lasting effect. Take the first steps as soon as you can to give your business a strong foundation for the future.