Building Business Credit Through Funding

Business credit versus personal credit

Business credit is tied to your company, tracked by commercial bureaus, while personal credit follows you as an individual and often drives early approvals.

Personal credit is your FICO score. Business credit lives with your company's identity, usually its EIN, and is tracked by commercial reporting agencies such as Dun and Bradstreet, Experian Business and Equifax Business. Each uses its own scoring.

Early on, almost every small business is judged mostly on the owner's personal credit, because the company has no history. Over time, with consistent reporting, the business can build a profile that stands on its own. That matters when you want to borrow without signing personally, rent space, or get supplier terms.

Ask any vendor or funder whether they report to commercial bureaus. Many do not, and payments to them do nothing for your business profile.

Building blocks that report

Supplier accounts on net terms, business credit cards and certain loans can report to commercial bureaus if the provider chooses to.

1. Set up the basics. Register the business properly, get an EIN, open a business bank account, keep a business address and a business phone listing.
2. Get a D-U-N-S number. It is free to request from Dun and Bradstreet and is used by many lenders and customers.
3. Use supplier terms that report. Some vendors report net-30 payments. Ask before you open the account.
4. Add credit that reports. Business credit cards and some loans may report. ROI Funder does not place business credit cards. Our business credit card guide explains how they work and when they fit.
5. Pay on time or early. Payment history is the strongest factor in most commercial scores.

Does financing build business credit?

Only if the funder reports to commercial bureaus, so ask before you rely on it to build a profile.

Some term loans and lines of credit are reported. Many working capital and revenue-based products are not. Funders in our network handle reporting differently, and the answer can change from one offer to the next. If building credit matters to you, ask this before accepting: does this product report to commercial bureaus, and which ones?

A line of credit used lightly and paid on time can be a good fit when it reports, because it shows a revolving account with low utilization. A term loan shows an installment history. Either only helps if you pay as agreed. Missed payments hurt both your profile and your relationship with the funder.

Do not borrow just to build credit

The interest and fees on borrowing you do not need will almost always cost more than the credit profile is worth.

Example, illustrative: a $10,000 funding with a total repayment of $12,000 costs $2,000 to use. If that product does not even report, the credit benefit is zero. Even if it does, you paid $2,000 for a line on a report.

Cheaper paths to build a profile exist. Pay existing suppliers on time and ask them to report. Use a small business card for routine expenses if you can pay it off each month. Keep utilization low. Check your reports for errors. Build the record through normal operations rather than manufactured debt.

The exception is when you already need the money. Then choosing the product that reports, at a fair price, adds value at no extra cost.

What improves your funding options faster

Higher, steadier deposits and fewer overdrafts improve approvals and pricing faster than a young credit profile does.

For funders that rely on bank statements, the deposits matter more than the bureau file. ROI Funder reviews three months of business bank statements for revenue consistency, average balances and existing obligations. Stronger numbers there help you more than a few months of credit history.

• Keep business and personal money separate.
• Avoid overdrafts and returned items.
• Run revenue through the business account.
• Pay down short-term debt that drains deposits.

Read the 3 Cs of commercial credit for the factors lenders weigh.

A twelve-month plan

In a year of steady habits, a business can set up its identity, add reporting accounts and show a clean payment record.

Months one to two: formalize the business, open the account, get a D-U-N-S number. Months two to four: open one or two supplier accounts that report and pay them early. Months four to eight: add a small card or line that reports and use it lightly. Months eight to twelve: review all three bureaus, dispute errors, and apply for larger funding with a strong file.

ROI Funder considers 500+ FICO and 6+ months in business, so you do not need a perfect profile to apply. Applying uses a soft credit pull. When you are ready, funding runs from $5,000 to $5,000,000.

Keep a simple tracker of every account that is supposed to report, with the date you expect it to appear. Check your commercial reports every quarter. If a payment you made on time is missing or wrong, dispute it with the bureau in writing and keep copies. Small errors left alone can hold back a profile for months.