Small Biz, Bad Credit: How to Build Your Business Credit

Small businesses are the heart of the U.S. economy. They make up an incredible 99.9% of all businesses in the country. What they share in common is the blessing—or burden—of a business credit ranking. The health of your score can determine your access to funds. But it’s not the be-all and end-all to your business growth. Read on to understand what business credit is, how to improve your score, and how you can still access cash with a less-than-stellar score.

What Is a Business Credit Score?

Similar to your personal credit score, every business is assessed and ranked. Factors that make up your score include credit utilization ratio (how much credit you have versus how much you’re using), length of credit and payment history, and any outstanding debts, among others. Your score signals to lenders your reliability to repay a loan, otherwise known as your creditworthiness.

Unlike personal credit scores, business rankings use a different scale. While FICO scores range from 300–850, business rankings generally use a zero to 100 range.

Boost Your Business Credit Score

NerdWallet advises the best and perhaps most obvious way to boost your score is to pay your bills on time. Here are some other options to lift your levels.

• Pay early. If you’re the type of business that waits until the due date to hit “pay now,” consider breaking this habit. Paying bills early not only positively impacts your credit score but it also signals to your creditors that you’re committed to a good working relationship.
• Increase your credit streams. When you’re in not-so-great credit shape, the last thing on your mind is opening a new line of credit. The key, however, is to open that new line of credit—and not use it. Having more credit available increases your attractiveness to credit agencies.
• Manage cash flow with your credit card. Business credit cards have come a long way. They offer access to fast financing with low interest rates and flexible grace periods, according to Credit Karma. Business credit cards can also help you manage a positive cash flow. Similar to a personal credit card, charging regular expenses on your business card buys you time before actual cash is due for payment. Some cards will let you carry a balance or delay payment up to 60 days. And, of course, if you’re flush with cash one month, paying your bills early will offset those months when cash is tight.

Fund Your Business—Even With a Low Score

Bad credit doesn’t have to seal your small business fate. Here are three alternative funding sources to fuel your growth.

• Borrow from a business credit card. Small businesses are often big spenders, especially when just starting out. That’s one reason why many business credit cards offer borrowing amounts up to $50,000. That may be more than enough to build your business or help you scale. Keep in mind, however, a minimum credit score may be required to qualify.
• Explore small business lending platforms. Small business-specific lenders have exploded in recent years. They are a great option for businesses that intend to repay a loan within six to 12 months. Kabbage is one company that dispels with a minimum credit score altogether. Instead, Kabbage requires at least one year in business with a minimum of $50,000 annual revenue and personal guarantees.
• Tap into your home equity. Business owners who just happen to be homeowners are in luck. Home equity loans offer an attractive alternative with fast application and flexible terms. Home equity loans are also less dependent on credit score and more dependent on the equity you have in your home.

Another way for near-immediate access to funds is a Hometap Investment, which gives homeowners access to the financial boost their small businesses need without debt, monthly payments, or interest.

Grow at Your Own Pace

Every business experiences financial highs and lows. Your immediate cash need may not match up with a lengthy loan process, however. And, with low credit scores, getting that loan in the first place may be difficult if not impossible. But, with the right strategy in place, you can increase your business credit score, opening the door to more financial options for your small business.

The more you know about your home equity, the better decisions you can make about what to do with it. Do you know how much equity you have in your home? The Home Equity Dashboard makes it easy to find out.