How to rebuild the Credit of your Business


If you have a business that experienced set backs which impacted your business credit negatively, rebuilding it back to good credit standing is essential for the success of your business. Here are important steps to take to rebuild your business credit:

Make sure all your business transactions are in the form of an LLC (Limited Liability Company)

Your company needs to be seen as a separate business entity. It can be tempting to continue operating your business as a sole proprietorship and using your personal credit to fund your business because getting approval for financing under your personal name might be easier than you business name.

But by doing all the business transactions under your LLC, you improve your company’s image among vendors and creditors, and eventually they will lend specifically to the business, not you, limiting your liability and protecting your personal credit.

Examples of these types of business transactions would be to open a bank account under your company name, setting up utilities on the business, as well as conducting credit trade lines with the companies you work with.

Settle and pay off old outstanding Debt. 

Embarking on your journey to good business credit requires paying off all the old debt which got you into negative credit territory. The sooner they are paid off the better because every month unpaid bills and debts are added to your credit history.

Reach out to your creditors about paying them off and having them report to the credit bureaus as paid. Many creditors will accept a lower amount if the debt has been outstanding long enough, but it is important to negotiate a settlement which their reporting will reflect positively on your credit score.

Also, reducing the amount you owe is important because it shows you do not have high debt obligations. This is called the credit utilization ratio, and its used by business credit lenders to qualify applicants. Focus on paying off loans with the biggest detriment to your score and business, such as the ones with the highest interest rates. When you have paid off this creditor, move your focus to the next most important one and so on. This ratio alone is about 1/3 of your credit, according to the BBB.

Check your business records and update them.   

As your rebuilding your business credit, make sure your corporate records, any state filings and licenses are correct and updated. In addition, list your business phone lines publicly in the 411 and any other directories so it easily available for lenders to find you during the approval process.

There are several credit bureaus that collect data on businesses in which lenders check during their underwriting process. Experian, Equifax, and Dun & Bradstreet are three major bureaus. But unlike personal credit scores, business bureaus can have different information regarding your records, and so it is important to review and update within each bureau.

Take on new Loan

The most vital part of getting your business back to good credit worthiness is taking on new debt and paying it back timely.

This includes establishing credit with companies you do business with.

Whether you are a retail store, manufacturer, or an online website, many aspects of your business involve dealing with other businesses who can notify business bureaus that your payments to them are paid in full and timely.

However, some vendors might not allow to work with you on credit if you currently have bad credit. Another way is taking a business credit card, or taking a small business loan.

Lenders who issue a business credit card are flexible with their guidelines if your business has bad credit, but normally the limits are very low, $300-500. Paying them can be beneficial to show timely credit payments, but the upfront fees can be steep, sometimes 30 percent of the credit line amount.

Another option is a business loan, which if you have bad credit, might have high interest compared to if you have good credit. But with a business loan, you can pay off old existing debt which is continually reporting negatively to the bureaus.

Discussing with lenders a new business loan with payments your business can handle makes this option the best when taking on new debt to rebuild your credit. Many business lenders can work around your situation to provide the right business loan for you.