Establish a solid credit history for your business to improve your financing options.

It takes money to run a business. But financing isn’t always easy to get: In 2022, only 27% of Asian, 26% of Hispanic and 13% of Black business owners had sufficient funding to run their businesses, compared to 50% of white business owners.1 But Black-owned firms were only half as likely as white-owned firms to get full approval for loans, lines of credit, and cash advances.2 There are many reasons firms may be denied credit. Learning about the application process and building a solid business credit history can improve your odds of receiving financing. Here are five key elements to address as you build your business credit:

1A formal business entity

It’s important to establish a separate business entity that can establish its own credit history. Having a separate legal entity for your business helps to create a credit profile with business credit reporting agencies.

  • Incorporate your business by registering it to establish a separate legal entity such as an LLC, S-corporation, or LLP.
  • It’s usually a good idea to apply for an employer identification number (EIN) from the IRS to establish additional separation between your business and personal finances, even if one isn’t required.
  • You should consult a tax or legal professional to help ensure you choose the right form of incorporation for your business.
An illustration of diverse business owners visiting the bank

2A business banking relationship

An illustration of a diverse business owner consulting with a banking specialist

Loans are by far the most common form of financing, sought by 76% of businesses.3

Like establishing a corporation, opening a business bank account helps establish your business as an independent entity.

  • While lenders may not specifically require you to have a business bank account, it could ease the process of applying for — and paying down — a business loan, line of credit or business credit card.
  • Having an existing financial relationship with a bank could make the process more efficient.

3Trade credit

Opening trade lines with your vendors can help build your business credit. Here are three steps you can take to get started.

  • Talk to your vendors about opening a line of credit.
  • Check with vendors to be sure they report their credit arrangements to the major credit bureaus.
  • Submit trade references to Dun & Bradstreet, which tracks business credit, to help ensure that your trade relationships are captured properly.
An illustration showing the steps on how to open trade line with vendors

4On-time payments

Just as with personal credit, an established history of on-time payments creates a track record for your business that can make lenders more willing to extend business credit.

An illustration of a diverse business owner keeping track of payment deadlines

of all business-to-business payments are made late.4

  • Late or missed payments can harm your business credit score.
  • Make all of your business payments on time or early, if possible.
  • If you know you’ll need more time to make a payment, speak with the affected vendor or lender right away to work out a payment plan.

5Monitoring your business credit score

To ensure your efforts to improve your business credit are working, monitor your score regularly.

20% of small business loans are denied due to poor business credit.5

By building and maintaining solid business credit, you can stabilize your cash flow and increase the chances your business will get the funding it needs to grow and thrive.

Track your score across the major business credit bureaus:

  • Dun & Bradstreet
  • Experian
  • Equifax

Correct any errors immediately by contacting the credit bureau and filing a formal dispute.

An illustration of a diverse business owner monitoring their credit score

Access to credit is crucial to growing and maintaining a healthy business. If you have questions about how to prepare your application or how to improve your company’s business credit history, make an appointment to talk a banker.

1. Fed Small Business, 2022 Report on Firms Owned by People of Color

2. Fed Small Business, 2022 Report on Firms Owned by People of Color

3. Fed Small Business, Small Business Credit Survey: 2022 Report on Employer Firms

4., New Data: 15% of Receivables Are Late

5. US SBA, 10 Stats That Explain Why Business Credit is important for Small Business