08
May

better credit for small business

When you think about the things you need to get ahead in business — a steady cash flow, good branding, a solid customer base — credit scores may not be on your radar. While business credit scores and personal credit scores are calculated differently, both can have a huge impact on your business’s success in the short and long term.

Why You Need Good Credit in Business

Understanding why good credit matters for your business really means understanding how your credit is used. There are 4 specific scenarios when your business (or personal) credit scores may come under scrutiny:

  • when applying for business financing, including loans, lines of credit, and credit cards
  • when applying for new trade lines with your vendors
  • when establishing utility services (such as electric, cellular, and internet services) for your business
  • when leasing property or equipment for your business

Good credit signals to lenders, vendors, and utility providers that you’re responsible when it comes to paying your bills. Specifically, it shows that you pay your bills on time and that your business is capable of managing its financial obligations, including debt. A poor credit score, on the other hand, suggests the opposite. 

How Good Credit Can Help Your Business

how good credit helps business

Your business can reap several benefits from a good credit score. Lenders, vendors, or other entities use these scores to assess your overall business health. These examples illustrate when a better credit score works to your business’s advantage:

1. It can make credit approvals easier

The better your credit score, the more likely you may be to get approved for loans, lines of credit, or credit cards. Having access to financing when you need it can be critical to your success. You can’t afford delays when you need a short term working capital loan to cover payroll or a term loan to purchase a key piece of equipment.

While lenders may also review your time in business and revenues, a good credit score can go a long way in aiding loan approval. And if you’re applying for utility services or a lease in your business’s name, a better score could result in a lower deposit.

2. You may qualify for better interest rates on loans

Credit scores influence not only loan approvals but the terms you receive. A higher credit score may result in a lower interest rate on the loan and a lower total cost of borrowing. Depending on how much you borrow, the loan term, and the APR, a lower rate could potentially save your business hundreds if not thousands of dollars. Money saved could be pumped back into your business to expand your product line, revamp your marketing strategy, or simply increase your cash buffer.

3. You may get better terms from suppliers

Good vendor relationships are important because these are the people you rely on for the products, materials, or services you need to run your business. Establishing trade lines with vendors becomes much easier when you have a good credit score backing you up. Vendors may be more inclined to offer you favorable repayment terms or a higher credit line. Being able to pay on a Net-60 basis, for example, instead of Net-30 could make it easier to manage cash flow.

4. You can grow your business on your terms

While you may be bootstrapping your business in the beginning, there might come a point when you need financing to take things to the next level. Better credit can open up more opportunities when it comes to borrowing. For example, you may be able to qualify for $1 million loan, whereas a lower score might limit your borrowing power to $100,000. That significant difference can directly affect your ability to grow and expand at the pace you’d like to set.

How to Improve Your Credit

how to improve your credit score

If your business or personal credit isn’t as good as you’d like it to be, there are things you can do to improve. With business credit, the following steps are most important:

  • paying bills on time, including vendor trade lines, everyday operating expenses, business taxes, and debt obligations
  • maintaining low balances on business credit cards, lines of credit, and tradelines
  • reviewing business credit reports to check for errors and disputing any mistakes or inaccuracies to have them corrected

These same tips can be applied to improve your personal credit scores. Additionally, you can also help your personal credit score by applying for new credit sparingly. Each new inquiry for credit can trim a few points off your score. Keeping older credit accounts open and having a mix of both loans and credit cards can also help raise your personal credit score.

Remember that credit scores are fluid and may change from month to month as new account information appears on your credit report. Checking personal and business credit reports regularly can help you keep track of your progress as you work toward better scores.

Guest article written by Rebecca Lake

Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.


Your credit score impacts your life in many ways, and negative items on your credit report can negatively affect that score. If you need help with cleaning up your credit report, contact Lexington Law.

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Posted in Credit Score