While most Americans are keenly aware of the power of good personal credit, fewer know the advantages of strong business credit. However, business credit can be transformational for companies—driving access to capital, reputability, protection for the owners, and more. Here’s a closer look at four key reasons why building a business credit file is a smart move.
What is business credit?
The term ‘business credit’ generally refers to a business’s credit profiles and scores which can, collectively, help third parties understand the level of financial risk a company presents. But how does it work?
The three business credit reporting agencies, Dun & Bradstreet (D&B), Experian and Equifax, collect information on the credit accounts of businesses. That information is then used to generate reports that feature a company’s payment history, credit ratings, general business information, and more. Interested parties—such as investors, vendors, suppliers, and lenders—can request business credit reports to assess the financial risk companies present. For example, if you apply for a business loan, the lender may pull one or more of your business credit reports to see how your company has managed loan payments in the past.
Paying your vendors and lenders on time and in full may improve reports, scores, or other metrics used by business credit reporting organizations. Conversely, failing to pay on time and in full may hurt those metrics.
4 reasons business credit is important for small businesses
Strong business credit is a testament to your company’s reliability. Here are four key ways it can benefit you as a small business owner.
1. Gain access to business financing
According to the U.S. Senate Committee on Small Business and Entrepreneurship, capital is the lifeblood of any business, especially small businesses, and most entrepreneurs need financing to start or grow companies. However, even if your business doesn’t need financing, it can often be helpful.
For example, Stephen Greet, CEO and Co-Founder of BeamJobs, says securing a credit line significantly shaped the trajectory of his company. “This line of credit was earmarked specifically for experimenting with new market strategies that inherently carried more risk and required upfront investment,” explains Greet. It acted like venture capital from a traditional investor but without relinquishing company equity or facing restrictive investor expectations. As a result, BeamJobs was able to aggressively pursue growth opportunities as soon as they were deemed feasible.
The problem is that an estimated 77% of small business owners are concerned about their ability to access capital, according to the 10,000 Small Businesses Voice Survey performed by Goldman Sachs in 2024. The good news is — business credit can open the door. If lenders pull your company’s business credit reports and see high ratings, your odds of approval increase. Further, you’ll have a better chance of qualifying for competitive credit terms because interest rates drop as the risk of lending decreases.
2. Build credibility with third parties
Strong business credit can also be helpful when a third party, like an investor, supplier, or client, is interested in partnering with your business. It shows that your company follows through with its obligations which can build instant trust. For example, Philip Alves, the CEO and Founder of DevSquad, used his company’s solid business credit to negotiate better terms with suppliers and vendors.
“With a strong business credit score, we’ve established favorable net terms with key software vendors, allowing us to defer payments and improve our cash flow management. This flexibility enabled us to reinvest our immediate resources into critical R&D, accelerating product development cycles and bringing innovations to market faster,” Alves says.
He adds that business credit has also earned his company partnerships and projects. “We’ve utilized our business credit to enter into strategic partnerships and project bids that would have been out of reach without the trust and credibility that a solid credit profile affords,” says Alves.
3. Preserve your personal resources
When business financing isn’t available, you may be tempted to fund business initiatives with your personal credit and assets. However, doing so requires you to pull from the financial resources available for your personal life. That could mean less money for retirement, a child’s college fund, the down payment on a house, or vacations. Personal financing also tends to be more limited than business financing, as it’s meant to fund household rather than commercial needs.
Zaher Dehni, the CEO of Taxfully, ran into a problem when his personal savings just weren’t enough. “In the beginning, finding money was tough. I had around $20,000 in personal savings to cover the costs, but as Taxfully grew and we got 10 new clients a month, I needed more funds than I could provide personally,” said Dehni. That’s when he realized how important it was to build good business credit.
Dehni then got a business credit card that he began using and paying off each month. “Because of that, I was later able to secure a $50,000 business credit line, which helped Taxfully build a new app and hire an additional staff member,” Dehni says. The investment directly contributed to a 25% increase in the company’s client base within six months.
4. Keep business and personal finances separate
Building business credit also helps keep your business and personal finances separate, which is necessary to help avoid personal liability for business debts.
For example, if your business goes under with an outstanding business loan, the lender generally can’t pursue your personal assets if you don’t sign a personal guarantee and you maintain the necessary corporate formalities (such as business registration and holding regular meetings), keep adequate business records, and maintain proper levels of capitalization and insurance. The debt belongs to the business which is no longer in existence—not you. That said, if you funded the business with a personal loan, agreed to a personal guarantee, or failed to follow the necessary corporate formalities, you could be personally responsible for the balance, no matter what happens to the business.
Keeping your finances separate also makes for cleaner records. When there is no crossover between your personal and business transactions, it’s easier to stay organized for accounting and tax preparation purposes. Additionally, you’ll prevent the possibility of piercing the corporate veil, which happens when a court finds that the business is essentially the alter ego of the person because the business was not run properly and separately. Consulting an experienced business attorney or CPA may help you maintain a proper and distinct business structure.
Start building your business credit
Building business credit is a smart move for any business. It not only provides a safety net for tough times but opens doors to growth opportunities and builds credibility. As the stories above show, it could help you win over an investor or partner, get approved for a growth-enabling credit line or loan, and gain access to net payment terms that open up more cash flow. But how do you get started? Check out our step-by-step guide to building business credit for all you need to know.
