How to build business credit

Business credit is one of the most important foundations of your company. Whether you’re entering a new partnership, negotiating payment terms or looking for a small business loan, your credit will be a factor for partners evaluating your position. Good business credit comprises a number of inputs and can take time to  build, but only a few mistakes to damage it. That’s why maintaining business credit is as much a matter of good financial hygiene as specific techniques to build business credit fast.

Knowing how to improve your credit score can be useful to your business, but it’s not the only way to improve business credit.  A strong credit profile can also make a big difference. If you have a healthy and well-documented credit history, you’ll be a more attractive prospect to lenders and may find it easier to access funds.

In this article we’ll explore ways to build business credit in the UK and how to secure the right finance for your company. 

What is business credit?

Business credit is your company’s track record and financial reputation. It’s like a school report, but focusing on your business performance, and is evaluated through a combination of factors such as payment history, credit use, and business credit score. Collectively, these factors determine your creditworthiness in the eyes of lenders. 

Good business credit means you present a lower risk and will be viewed more favourably for financial products such as credit cards and loans. Bad business credit, however, can lead to higher interest rates for lenders, tighter payment terms and sceptical treatment from potential business partners. 

What’s the difference between personal and business credit?

Personal credit is linked to an individual’s financial profile and is based on factors such as loan repayment history, level of debt, and credit card usage. Business credit is tied to a company’s trading history and financial standing. Both tell lenders how creditworthy you are. 

Personal credit enables you to buy products, pay bills, and borrow money. Business credit enables business owners to access finance to achieve short-term and long-term business goals. This could include making an acquisition. If you’re a sole trader, your personal credit and your business credit may overlap in the eyes of lenders, and personal credit is sometimes used instead of business credit. 

Getting started: How to build business credit from scratch

Setting up your company

• Choose the right business structure: It’s important to keep your business and personal finances separate, which means choosing the right business structure. If you’re a sole trader, your personal credit will be under scrutiny. If you form a corporation or limited company (LTD), personal credit is removed from the mix, unless you are also providing a personal guarantee. Having a separate legal entity for your company makes it easier to build a business credit profile and qualify for business financing. Apart from protecting you from the personal liability you would face as a sole trader, it may also bring tax advantages. 
  
  
• Register your business with the appropriate authorities: Once you’ve decided on your legal framework (LLC or corporation rather than sole trader), you must register your company with Companies House. To build business credit in the UK you will also need to be tracked by the principal authorities that rank credit: Transunion, Equifax, and Experian (more on them later).
  
  You can apply for a Dun & Bradstreet DUNS number, to start a credit file for your business, but if you have a registered company based in the UK or Ireland, you should automatically have received a number. Experian and Equifax will also start credit files without you needing to register. 
• Obtain a Unique Taxpayer Reference (UTR): A UTR is a 10-digit number issued by HMRC to all new companies. The UTR is used for all tax-related matters and is essential when registering a business for tax, filing tax returns, and paying corporation tax.

How to build business credit without using personal credit

Every individual who’s ever used a financial product has a credit score and early on it may be easier to use your personal credit score to vouch for your business. However, in the long term, it’s essential to prioritise building business credit separate from your own.  

• Open a business bank account: A business bank account is only used for business transactions, which means you keep your personal and business finances separate and transparent. As well as helping you build a business credit history and have easy access to money for your company, a business bank account might include useful tools such as accounting and payroll software. 
• Separate personal and business finances: As mentioned above, opening a business bank account keeps business and personal finances separate, and it’s good practice to ensure there is no cross-over in any financial matters. For example, by only using a business credit card for business transactions. A strong business credit profile may increase your borrowing potential.
• Keep financial records: Good financial housekeeping will reflect well on your business and help you stay in control and track expenses. Make sure there are no gaps or confusion in your records, including consistent bookkeeping, end of year accounts and employee records.

How to build business credit fast

In addition to registering your business, setting up a business bank account and sorting tax details, make sure you are profiled by credit agencies and that your business contact details are logged with all relevant directories. You can also establish healthy relationships with suppliers or vendors (ie, be a prompt payer) and keep track of your credit rating to ensure accuracy and avoid mistakes.

• Apply for a business credit card: When you charge all your business expenses to a business card, it keeps your dealings neat and transparent. This is important for tax reasons and will help your business credit profile if everything is clear and in order. A business credit card also brings credit risks however – if you can’t keep up with payments your business credit may be impacted, leaving you with debts at high interest rates. 

• Use vendor credit lines: Vendor credit enables businesses to buy goods and services and pay at a later date. Using vendor credit lines eases cash flow and helps businesses manage payments, thus building a stronger business credit score.

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• Find reliable suppliers and build good relationships: Your business relationships will influence your business credit. If you have good working relationships with suppliers, and a good payment history, it gives confidence to lenders.

Developing a credit profile

One of the most important ways to build a good business credit score is to pay suppliers, lenders and other creditors promptly and avoid falling into debt and defaulting on payments. 

You should also file your company accounts on time and keep a clear record of your business activities. All your business undertakings should show that you have financial discipline and are scrupulous about meeting your commitments.

• Register and check in with business credit bureaus: As mentioned above, there are three main credit bureaus in the UK: Transunion, Experian, and Equifax. Because you are a legal entity and have a business footprint, you’ll normally be automatically monitored; however, you must open an account to review your score. Knowing the score will identify any weaknesses and help you make improvements in your credit profile.

• Establish positive trade lines: Trade lines detail all the credit deals associated with your business. When you establish accounts with lenders or vendors, they’ll report to credit agencies who will record your track record and calculate your credit score. Establishing positive trade lines (for example, by always paying your accounts on time) is a good way to strengthen your credit profile. 

Maintaining and monitoring your business credit

How long does it take to build business credit?

Building business credit usually takes six months to a year of financial activity. This will demonstrate your payments history to creditors and vendors and show how you are managing your overall finances and using credit facilities.

The importance of timely payments

Making payments on time is one of the best ways to build business credit and protect your credit score. Payments that are more than 30 days past the due date can severely dent your score and business profile whereas timely payments demonstrate reliability and a commitment to meet financial obligations.  

Regularly check your business credit report

Checking your business credit report will help you understand your current credit status, stay aware of what lenders will see, and spot any inaccuracies or information gaps.  

Advanced strategies for building business credit

In addition to the strategies already mentioned, there are other steps you can take to build business credit: For example: 

• Use business loans and lines of credit selectively and ensure you always meet your commitments. Avoid making too many credit applications in a short period as it might imply that you have financial issues, and try to keep below your maximum credit limits so that your business doesn’t look under pressure. Also bear in mind that loans will incur a cost from interest and fees, so owners will need to balance those with their cash flow availability,
• Know who you are doing business with and avoid entering into a contract with any customers who have a bad payment track record. Who you associate with can have a bearing on your credit profile, not to mention on the efficacy of your accounts receivable.
• Build good relationships with banks and financial institutions by taking out credit in the form of business credit cards and business overdrafts, and ensure you always stay within your limits.

Common credit challenges and solutions

Building business credit is an active process that takes time and care, but with a little effort, it’s not too difficult to shape your profile and make adjustments where necessary. Knowing your credit score and monitoring it for accuracy is a starting point. If there are any errors or omissions you should ask for corrections, and if you monitor how you’re appearing to lenders, you can identify weaknesses in your profile and try to improve your business relationships and operations. 

Among other things, UK credit agencies will look at payment history, credit card utilisation, credit history length, and recent credit card applications. So, make sure you:

• Pay bills on time and don’t default on payments
• Use credit wisely and show responsible credit management
• Build a consistent credit history 
• Don’t make too many loan or credit card applications over a short period

Can I get a loan with limited credit?

Yes, it’s possible to get loans with limited credit. While credit will always be checked, low credit scores don’t automatically mean you’ll be turned down. With alternative lenders like iwoca, there is a broader approach to underwriting that is not dependent on credit scores alone.

If you link your online accounts or upload bank statements, VAT returns or company accounts, iwoca will have enough insights on your business. And it means we can offer instant funding without the complex paperwork associated with a traditional business loan. We have also eliminated complex fees and offer far more flexibility. If you have limited credit, we may still be able to lend to you with a personal guarantee.

It’s easy to find out how much you can borrow, and with an iwoca business loan you can borrow between £1000 and £500,000 with flexible repayments.

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