If you have bad personal credit, it might feel like there’s no way you can borrow for your business. But your company can have its own separate credit score, so building business credit is possible even if you have other financial issues. Here’s how to build business credit with bad personal credit, as well as your options for financing in the meantime.
Reasons for Building Business Credit for a Small Business
As you can imagine, your credit score is important if you’d like to take out a small business loan. Lenders will check whether you have a good score when you apply for loans, leases, credit cards, and other types of financing.
A good business credit score increases your chances of qualifying to borrow and helps you get better terms, like a lower interest rate or lower down payment. If your personal credit report has issues, it’s even more important to improve your business credit score because it can offset other problems when you apply.
Even if you aren’t trying to borrow right now, establishing business credit is worthwhile. Unlike personal credit scores, your business credit report is available to the public. Potential clients, suppliers, and other business partners may pull up your report during negotiations. A good score will project reliability and increase your chances of closing the deal.
How to Build Business Credit with Bad Personal Credit
There are a few steps you can take to build business credit:
- Get an EIN — Your business needs a separate federal tax ID number to build credit, called an employer identification number (EIN). If you don’t already have an EIN, you can apply for one with the IRS.
- Register with the credit bureau — Dun & Bradstreet is the main bureau in charge of business credit scores. Once you have your EIN, you can apply with the bureau to get a D-U-N-S Number, which establishes your report.
- Set up a secured credit card — Paying off a credit card each month is a quick and easy way to build credit, but you might not be able to qualify for a regular business card, given your bad personal score. With a secured credit card, you make a deposit in advance to back up the credit line. Then, when you pay off the balance each month, it adds points to your score, just like a normal credit card.
- Ask vendors for tradelines — Your vendors may be willing to let you finance your purchases through a tradeline. If so, ask them to report your payments to the credit bureaus.
- Pay your business bills on time — Other bills like your utilities and rent could also impact business credit, so make these payments on time to protect your score.
- Keep working on your personal credit — Lenders could still look at your personal credit score for business loan decisions. Keep improving your personal score by paying down credit card debt and always making your monthly payments on time.
Getting Business Loans With Bad Personal Credit
Building business credit is an important goal, but it also takes time. The Small Business Administration notes that it takes about 12 to 18 months to improve your business credit score. So what can you do if you need financing now?
The good news is, it is possible to take out business loans even with bad credit or no business credit score. In this case, lenders would look instead at other factors, like your revenue and number of years in business. If your business is earning revenue and has been operating for at least a year, you may be a good candidate. As an added benefit, when you make monthly payments on these business loans, you’ll improve your business credit score.
While it takes some extra planning to figure out how to build business credit with bad personal credit, the steps in this article can get you there. In the meantime, you can still access cash flow loans to keep growing your company.