How to Rebuild Your Small Business’s Credit Record

by / ⠀Startup Advice / February 2, 2021

According to the U.S. Bureau of Labor Statistics, 20% of small businesses fail in the first two years. The impacts of the COVID-19 pandemic have caused even more established companies to fail over the last year.

If you’re an entrepreneur whose business became negatively impacted by financial struggles, fear not: you can rebuild its credit. Rebuilding strategies include using personal credit, paying the bills on time, and using a secured credit card. You will also want to make sure you work with vendors that report your payment history to credit reporting agencies.

How Do Business Credit Ratings Differ From Personal Credit Ratings?

Different reporting agencies exist to serve businesses. Agencies include Dun & Bradstreet, Experian Intelliscore, Equifax Business Credit Report, and FICO’s Small Business Score, and of these, Dun & Bradstreet is the best known. You can recognize its reporting when someone asks you for your business’s DUNS number. Companies need an Employer Identification Number to apply for a DUNS number. This account will enable your company to build a credit history.

Agencies that report business credit scores use more diverse scoring systems than those that do personal reporting. These differences make it a little more challenging to track and manage your business credit.

While federal laws require agencies to provide one free credit report a year for individuals, there are no such guidelines for businesses. While you want to check the business report regularly, you can expect to pay for the information each time you request it.

Creditors are categorized by type of account, not by company name. This practice can make it a little more challenging if you need to request corrections or submit a dispute.

Creditors on personal accounts can’t report you as late until you are more than 30 days overdue. However, creditors can report your business for paying late after only a day or two. Also, unlike personal accounts, anyone willing to pay the fee can request a specific company’s credit report. 

Look no further for tips to help you rebuild your small business’s credit record:

Utilize Your Personal Credit Score

Entrepreneurs are not your average small business owners. Almost by definition, entrepreneurial ventures are higher risk. You’ve likely already used your personal credit record and resources to help fund your venture.

The good news: if your finances are in good shape, lenders might take personal guarantees to provide funds for the business. According to the 2019 Federal Reserve Small Business Credit Survey, 86% of firms with 1-499 employees relied on personal credit for funding. Banks are more likely to provide a loan or line of credit when owners can provide at least 25% of the funding needed.

If your personal credit also took a hit during the pandemic, work on rebuilding that. There are two primary ways to repair your credit record. First, pay your bills on time, and second, reduce your “credit utilization ratio” — the percentage of available credit you are currently using.

Pay the Bills on Time

This advice is not just valid for personal credit. It’s also critical to rebuild your business’s credit record of paying bills on time as part of your recovery strategy. As mentioned previously, vendors can report late payments when they are only a day or two overdue.

Federal guidelines mean business credit reporting agencies keep financial data for extended periods. Trade data and vendor-reported payments are kept for 36 months. Collection and tax lien data is kept for six years and nine months. While bankruptcies stay on the business record for nine years and nine months.

If your financial problems happened recently, vendors and lenders might work out payment arrangements with you.You repaying the money they are due is just as essential to them as retaining your credit rating is to you.

Use Secured Credit Cards

Some banks offer secured credit cards for business accounts. You can secure this credit through business assets, including machines and inventory. Banks may even accept personal collateral as part of a personal guarantee.

Many secured cards require a cash deposit. Most times, the deposit covers the new credit limit on the card. The deposit assures lending institutions that you will repay them. Some cards also allow you to increase your credit limit by adding to the deposit.

If you choose to go this route, verify the lender will report the credit used to the business credit reporting agencies. This step is vital to helping you rebuild your business credit history and score.

Work With Vendors That Report Your Payment History

Work with medium and large businesses that allow you to use net-30 accounts. Some companies even offer 60- or 90-day accounts. Office supply stores, consulting agencies, and apparel vendors are examples of companies that may offer this type of purchase and repayment system.

With this arrangement, you buy products on credit that you repay in full within 30 days. It offers you a way to demonstrate a solid payment history — but only if the vendors report those accounts to the credit bureaus.

These kinds of vendors may require your business to be recognized as a legal entity. Sole proprietors will have a more challenging time qualifying for these plans. It can help if you register with a secretary of state or be structured as an LLC, S corporation, or corporation. Your business should also have its own banking account completely separate from your personal funds.

While it can be challenging for businesses to rebuild credit after financial setbacks, it is possible with careful management. Hopefully, you still have personal resources to support the rebuilding effort. However, choosing the right vendors and payment plans can help. Finding and using secured credit cards is another strategy to improve your credit rating.

While it will take time, smart choices and diligent effort will help your business regain its financial footing.

About The Author


Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

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