Business Credit: What Experts Say You Should Know

It can be challenging to successfully manage your personal credit, even if you are aware of what you should be doing. Just like personal credit, business credit is something that can be difficult to manage. You’ve probably heard the term “business credit,” but haven’t been given the information you need to understand how it works.

As stated on Investopedia, “a business credit score is a number that indicates whether a company is a good candidate to receive a loan or become a business customer.”

If you are planning on becoming a business owner/entrepreneur at some point, you should probably start reading up on business credit. To help you start, we asked a few business and finance industry experts to explain what they believe you should know about business credit.

Gerri Detweiler, Education Director for Nav

“Most business owners don’t even realize business credit reports exist. The three major commercial credit reporting agencies are Dun & Bradstreet, Equifax, and Experian, though there are others. These companies sell millions of business and personal credit reports each year, so just because you haven’t heard of business credit, that doesn’t mean it won’t impact your business.

Here are a few things that often surprise business owners when they learn about business credit:

• Anyone can check your business credit without your permission or without telling you they have done so.
• Business owners are not entitled to a free copy of their business credit report because there are no federal laws covering business credit.
• Lenders are not required to tell you if they turned you down for financing because of information they saw in your business credit report.
• Business credit reports don’t list the names of companies reporting payment history. Instead, they list the type of account such as bank card or utilities.

Personal and business credit are kept in completely separate databases at the credit bureaus. However, some types of business credit require personal guarantees and may report to the owner’s personal credit.”

Sean Messier, Credit Industry Analyst for Credit Card Insider

“Business credit, much like personal credit, is a fairly complex topic, and there are numerous similarities and differences between the two.

In the earliest days of your business, your ability to get funding through loans and similar means will likely depend on your personal credit. You'll often have to provide a personal guarantee in order to get a business loan or credit card.

It’s essential for your company’s growth that you establish a business credit file and begin building business credit as soon as possible.

Though business credit is calculated differently and reported by different bureaus than personal scores, it can be built in many of the same ways.

Once you’ve established a business credit file, open a business credit card, even if you have to provide a personal guarantee. Use your business card to fund essential purchases, and pay off your balance by the end of the month as you would with a personal credit card, and your scores should rise over time.

Many business cards boast generous rewards programs, allowing you not only to build your credit, but to garner savings and helpful benefits.

You can also bolster your business credit scores by establishing trade lines with vendors, suppliers, and lenders. It’s not universal, but some business-to-business merchants report tradelines to business credit bureaus — and if they don’t already, you can ask them to do so.”

Brock Blake, CEO and Founder of Lendio

“Similar to personal credit, business credit is built over time. Business credit reports are based on business demographics, public records, trade payment history, financial payment history, corporate family trees and identifying information for each business level, and small business owners and/or guarantors associated with the business. The problem is that it takes a long time for it to be an accurate depiction of a business’s creditworthiness. For personal credit, certain financial activity is required to be reported, but for business credit, that’s not the case. Lenders and credit bureaus aren’t required to report activity. A business could be open for years and not have much, if any, business credit history.

Here are some basic things to know about business credit:

It takes a long time to build business credit. Creditors and vendors are not required to report payment performance, but if they were, it would still take 10-20 years to have an accurate and thorough business credit report for a lender to review.

Lenders more frequently pull personal credit. More often than not, creditors pull personal credit and not business credit. From the lender’s perspective, the business owner’s personal credit profile has many years of payment history while the business credit data is incomplete or inaccurate.

Instead of pulling business credit, lenders focus on the cash flow of the business. Lenders are primarily interested in the financial health of your business and often ignore the business credit profile. As such, the main data points analyzed are the cash flow analysis and the transaction history of the business’s bank account.

Business credit isn’t utilized by lenders in the same way that personal credit is, but there are many instances where business credit is helpful. Business credit can get your business approved for trade credit. If you’re building out inventory and want better payment terms, many trade vendors may also pull business credit to see if your business is worthy of a 60-day extended term. Trade credit and extended terms can both assist with cash flow management and provide relief in times of need.”

Jenn Garbach, Head of Brand Marketing, Small Business Card at Capital One

“Business credit is a critical component of a company’s ability to secure financing, yet our research shows less than half of business owners have ever viewed their business credit reports.

By proactively managing their credit, businesses gain other important benefits such as better access to funding; becoming trusted partners, suppliers and vendors; and growing their businesses to capitalize on market opportunities. One way they can do this is to take advantage of free tools such as Business CreditWise which provides every business owner in the United States an in-depth view of their business credit report and the ability to make corrections to it without impacting their credit.”

David Gafford, Co-founder of Shift Processing

“Personal and business credit is a topic that's confusing for many business owners, and rightfully so.

Many business owners will open up a business credit card during the launch phase of their business. Depending on the type of business they set up, that card can affect their credit score.

Simply opening a new business credit card can be cause for a hard pull on personal credit, which might drop a personal score by a few points.

Since credit score is heavily influenced by a person's credit utilization ratio, opening a new business card along with current personal cards can dramatically change how much available credit an individual is using.

If the institution that you're applying for the new business card with requires a personal guarantee as a part of the application, the individual would then be liable for any unpaid debts the new business card might incur.

When it comes to accepting credit cards as a form of payment at a business, a merchant's personal credit is taken into consideration before a merchant account is issued.

Many times business owners with poor credit will apply for a new merchant account for their business and leave out their social security number, and try to get a merchant account that isn't tied to their personal credit.

It isn't always possible to separate business and personal credit, but in the case of a merchant services account, there are special considerations that can be made on an individual basis.”

Daniel Gillaspia, Founder of UponArriving.com 

“Your personal credit score has a huge impact on obtaining credit for your business when it comes to small business credit cards. While not every business credit card will report to your personal credit profile, if your personal credit score is subpar, it could prevent you from being approved for many small business credit cards.”

Nishank Khanna, CMO at Clarify Capital

“Similar to how your personal credit score has a big impact on your financial life, your business credit helps you get better interest rates and terms when seeking a business loan or line of credit. Most alternative lenders will approve you for a business loan if your credit is over 600. But if you decide to pursue an SBA loan, the requirements are even more strict. SBA-approved lenders require a credit rating of at least 640.

If you're looking to get a traditional term loan, lenders will factor in your personal credit score to make their approval decision and also to decide what APR and terms to offer you. That being said, there are other forms of financing available where your personal credit is not a deciding factor. Invoice factoring is one such option.”

Lisa Chu, President and CEO of Black n Bianco

“Every business should be aware that their personal credit score will affect their ability to obtain a business loan. While a business credit score may be important, most lenders do look at personal credit scores when deciding whether to grant a business loan. Personal credit scores are very often linked with your business credit score as missing payments, late payments, or overdues will usually show up on your business credit report. It's critical to protect both your business and personal credit score.

Doing a yearly routine check of your business credit report is also critical, because it will give you the option to dispute any errors before it affects your score. Understanding what is on your business credit report is only a partial part to running your business.”

The bottom line

Clearly, business credit can be an important part of your business-owning journey. Therefore, it’s important that you manage your business credit the right way. According to a U.S. Small Business Administration (SBA) article, when you build credit for your new business, you can "improve your company’s image, protect your personal credit, limit your liability," and more.