How to Build Business Credit as a Young Entrepreneur

Many young entrepreneurs struggle to access finance. Great ideas with potential are of little use if there isn’t a meaningful capital injection. Knowing how to build business credit as a young entrepreneur is one way of kickstarting and sustaining your business. While there are a few funding options out there, the responsible use of credit could take you from zero to hero. Let’s explore how credit can help you along your (entrepreneurial) hero’s journey.

Firstly, what is business credit?

Business credit is different from personal credit. How to build business credit is a really important undertaking as it separates your personal and business finances. This reduces personal liability and allows your business to access much more substantial funding options.  In addition, lenders, suppliers and business partners will perceive a solid credit profile as a sign of trustworthiness and good standing. 

Factors influencing business credit scores

Payment history, credit utilisation, length of credit history, public records and credit inquiries all influence your credit score. If you score higher on the report card, you could secure better and more flexible loan terms.

How to build business credit as a young entrepreneur

It’s not easy building up credit, especially if you’re quite new to business. Luckily, there are ways to get the ball rolling. We’ll touch on three.

  1. Open a Business Bank Account

The most important thing to do right now is separate your personal and business finances. Opening a business bank account allows you to track income and expenses accurately. It also helps you establish a banking ‘record’, showing you can manage your finances (like a boss).

Banking institutions just love entrepreneurs. There are some enticing deals and offerings out there. Ensure that the financial institution of your choice offers business-specific accounts with features tailored to your needs.

2. Establish Trade Lines and Vendor Credit

Say what? Essentially trade lines and vendor credit are the building blocks of a positive credit history. If you have a good relationship with your suppliers and vendors, they won’t have much to complain about at the local credit bureau. Nurture relationships with suppliers and vendors who report credit information to business credit bureaus. Make timely payments and gradually expand your credit sources to diversify your business credit profile.

Remember that building business credit with multiple lenders and vendors diversifies your credit portfolio. It demonstrates your ability to manage different financial relationships. 

3. Monitor and Manage Business Credit

Meanwhile, regularly monitoring your business credit reports is going to save your sanity. Use tools and resources provided by credit bureaus to keep track of your credit standing. These tools also track credit use and changes to your score. Ensure that your business credit profile accurately reflects your financial responsibility.

Best Practices for Building Business Credit

Responsible Financial Management

Practicing responsible financial management is key to building and maintaining strong business credit. Pay your bills on time, manage cash flow effectively, and avoid overextending your credit. Maintaining a positive financial reputation builds trust and credibility with lenders and other stakeholders.

Timely Payments and Low Credit Utilisation

Making timely payments is crucial for establishing a positive credit history. Pay all your business obligations promptly, including loans, credit cards, and vendor invoices.

Additionally, keeping your credit utilisation low by managing your debt-to-credit ratio demonstrates responsible credit usage and can boost your credit score.

Building Business Credit as a Young Entrepreneur

With everything you have to think about as a young entrepreneur, it’s no wonder you’re stressed and running off your feet. A few tips and tricks, like how to build your credit score, will ease hopefully lighten the load.

Limited credit history, a lack of assets, and minimal business experience may hinder your initial credit-building efforts. But we’ve shown there are strategies to overcome these challenges.

Notably, building business credit is a long-term process. But since you’re a business wonder, you’ve already mastered discipline, financial responsibility and strategic decision making!

Youth entrepreneurs! Payflex has your back. We’ve partnered with Merchant Capital to offer start-up solutions that will see you soar. Qualified applicants will receive their flexiadvance in less than 24 hours. Today’s your day!