12 Tips to Build Credit for Your Business

12 Tips to Build Credit for Your Business

Having a good business credit score makes financing your business easier, and you have better chances of accessing loans.

However, with rising production costs, it’s difficult for most businesses in Canada to maintain a healthy business credit score. That’s why you should know some easy tips to build credit for your business, especially if you’re new.

This article will talk about what business credit is, the different types of business credit, the benefits of having healthy business credit, easy tips to build credit for your business, and other relevant information.

What is business credit?

A business credit shows the Financial health status of your business. It indicates how you have performed and managed all your finances. Investors and Lenders in Canada use the business credit score to determine if your business is creditworthy and the chances of repaying a loan.

To determine your company’s creditworthiness, you can consult either of Canada’s two main credit Bureaus:

These Credit agencies have diverse methods that they use to calculate your score. However, it usually ranges between 300 and 900. Business-wise, you should aim for a score of 660 or higher.

12 easy tips to build credit for your business in Canada

Having an excellent credit score is what every business owner in Canada seeks. While it may be complicated, we have provided detailed steps on how to build a business credit score:

1. Incorporate your Business

The first thing to do when starting your credit score journey is to incorporate your business as a Limited Liability Company or other entity. This helps separate you from your business in the event of any litigation. You will need to get an EIN and set up a business line.

2. Register your Business with a Credit Rating Agency

As an entrepreneur in Canada, it’s ideal that you register your company to build a business credit score. Register the company with one of the best business credit reporting agencies in your province. This ensures your business credit file is opened and your payment data is sent to the credit rating agencies appropriately.

3. Open a Business Bank Account

Also, one of the easy tips to build credit for your business in Canada is by setting up a business chequing account. There are flexible business checking accounts offered by top banks in the country. After opening the business account, you should make it a point to use it for all of your financial dealings. You could open a business bank account with:

  • Tangerine Bank
  • Coast Capital Bank
  • CIBC
  • Scotiabank

They offer business checking and savings bank accounts to help build a formidable payment history. Which increases the likelihood of securing business loans and other financial aid. 

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4. Get a Business Credit Bureau Number

There are many business bureaus and agencies you can use in Canada. You will need to register with them and get a number. The number you will be given is known as the D-U-N-S number, which helps identify your business.

5. Have a Good Payment History With the Business Credit Reporting Agencies

When it comes to ascertaining your business’s creditworthiness, much depends on your business credit report. Therefore, it’s crucial to always have a healthy payment history on business credit reports.

6. Strengthen Trade Lines With Vendors and Suppliers

As an entrepreneur in Canada, it’s necessary to build business credit with your suppliers and vendors. With this trade credit, they will be able to buy goods on credit. This helps your business if you have cash flow issues that might harm it.

7. Obtain a Business Credit Card

You Should also try to get a Canadian business credit card. This is an ideal way to get credit for your business. When this card is used for transactions, it will help build a healthy payment history. When people trace these card transactions, they will be able to offer financial assistance easily.

8. Get a Line of Credit

You Should also try to apply for Credit lines, especially when you are a small business. These lines of credit will help finance your business when you need it. While there is a limit to these credit lines, it will continue to increase as you pay them back.

9. Avoid Loan defaults

Ensure that you always make timely payments on all loans and bills owed. When you pay on time, lenders and creditors will know you are responsible. Your loan payments are shown on your business credit records, which every lender will ask for before approving loans.

10. Network With Other Businesses Similar to Yours

Going solo is not an ideal way to build a positive business credit record. One of the easy tips to build credit for your business is by connecting with businesses in your industry. When you do this, you will have access to more credits and financing options.

11. Borrow Responsibly

While it’s difficult and almost impossible to run a viable business without borrowing, this must be done responsibly. Don’t take on debts you know you can’t pay, and avoid maxing out your credit card. When you borrow sensibly and make timely payments, this will help your business credit score.

12. Track your Credit Score

The best business credit bureaus all offer free credit reports to their customers. Doing this consistently can help you spot problems quickly so you can implement fixes right away.

Factors that can affect your business credit score

We’ve covered some easy tips to build credit for your business in Canada. However, knowing what affects your business credit score can also come in handy, and they include:

Late Payments

When you pay your bills or loans late, this harms your business credit score. Businesses that have multiple Late payments are usually scored low on creditworthiness.

The balance shown on these late payments will affect your score, with high scores being more severe. If this continues, you will be seen as less trustworthy by lenders.

Collections

Collection claims can also have an impact on your business’s scores. This happens when a lender escalates your late payment to a third-party company that’ll help them with the collection process.

Several agencies in Canada help collect debts owed. When these claims show up on your business credit score, it makes it look bad.

Also, when you have late payments with a collection agency, endeavour to pay fast. You can have a talk with the agency to draft out a convenient repayment plan.

Lawsuits and Liens

Since liens and judgments filed against your business will appear on your business credit report, you have to be careful. When there are multiple lawsuits against you and your business, it shows a higher risk of delinquency.

Also, when lawsuits and judgments are recent, they have a severe impact on your business. Your best bet is to contact a lawyer to help resolve all lawsuits against your business.

High Credit Utilization

Many businesses rely on several suppliers for their business needs. When you keep incurring expenses on these trade accounts, this increases your credit utilization ratio.

The company’s credit score will drop if you make more large purchases than usual. You need to pay down some debt and lower your credit utilization ratio so that you can get a better interest rate.

How does business credit work in Canada?

The different credit bureaus in Canada use different methods to determine your creditworthiness. Some of these factors include loan repayments, personal credit history, and credit utilization.

Also, some lenders use reports and scores to determine if they can lend you capital. You will need to utilize some of these easy tips to build credit for your business if you want to access more financing opportunities.

Types of business credit in Canada

While exploring our easy tips to build credit for your business, it’s also important to know the different types of credit available to businesses in Canada. Here are some examples:

Vendor Credit

Vendor Credits are important to businesses that purchase equipment and materials from vendors without immediate payment. This is common with retailers who don’t have enough cash to buy supplies. Many small businesses in Canada use this type of purchase to build their business credit.

Supplier Credit

Supplier credit is credit from suppliers to buy inventories for their businesses. However, unlike vendor credit, this is a long-term credit facility with more complicated agreements.

Service Credit

This is a credit facility that is used by entrepreneurs. Examples are gas, water, electricity, and internet bills. Normally, businesses and individuals are expected to pay utility bills at the end of the month. If you pay this regularly, it can help build your credit score.

Business Credit Card

This is another option you can use to build your credit in Canada. There are many business credit cards available to small businesses with little or no history. The downside is that these cards have spending caps that vary by industry. Some of these business credit cards, unfortunately, also come with exorbitant interest rates.

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What does a business credit score look like?

Here is some information contained in a Business credit score in Canada:

Business Information

The first thing you will see on a business credit report is the business name and address. You will also see all the incorporation information, the total number of employees, and the sales Volume.

Score Summary

This is a section in the report that summarizes the financial risk your business poses. Lenders are very critical of this section when giving business loans to startups and SMEs. This section will discuss the probability of your business paying back loans on time and if your business is profitable.

Highlights and Alerts

In this section, there is a summary of your business credit accounts, the balance, and the limits on withdrawals. Also, it will show late payments in bulk or legal inquiries that can affect your business credit.

Industry Trade Details

This is about all trade credit accounts you have with banks, such as balances, repayment information, the number of accounts, and the total fees due for payments.

Banking Report Information

This is a section with details about financing accounts you have with Canadian banks. It includes the number of accounts owned by you, type of account, balance, and loan information.

Collection Information

This section includes information about reports made by third-party collection agencies. It includes collection claims, the names of creditors that initiated the claims, the amount of each claim, the amount you have repaid, and the remaining balances.

Legal Information

This is information about all legal suits and judgments against your business. It also contains a list of recent inquiries made about your business in the last 36 months.

Canadian Business Bureaus that keep business credit scores

Before implementing our easy tips to build credit for your business, you need to know who is in charge of implementing these scores. While many agencies have information about your business credit score, here are the top three in Canada:

Equifax

This is one of the biggest business credit agencies in Canada. They provide your credit score, which assesses your business and the chance of liquidation in the next 12 months. Equifax provides access to industry and financial data that can aid in the formulation of sound business decisions.

Dun & Bradstreet

At Dun & Bradstreet, you will get three business credit scores, which are: delinquency score, credit score, and financial stress score. These scores will show your credit rating and your chances of paying bills within 120 days. It will also indicate the chances that your business will shut down in the next six months.

At D&B, you will get a PayDex Score, which shows a snapshot of your bill payment habits. To access your score with them, you will need to apply for a D-U-N-S number, which is free on their website.

TransUnion

TransUnion offers Canadians both business and personal credit scores. From the credit report shown by TransUnion, you will have your trade data and credit score, which will come in handy when making critical business decisions.

A business credit score is between 400 and 850; while 400 shows a bad credit rating, 850 shows an excellent business rating.

Benefits of having a good business credit score in Canada

Let’s explain some advantages to having a healthy business credit score in Canada. Hopefully, it gives you more reasons to implement our easy tips to build credit for your business:

Better Approval Odds

Anytime you are applying for a business loan, credit card, or line of credit, the lender will ask for your credit score. When you build a positive credit score, it shows you are trustworthy and can be relied upon to pay debts.

It’s important to always pay bills on time so that your lenders will approve your loans. Your history of creditworthiness shows lenders you can be relied upon.

Low-interest Rates

Another benefit of having a great credit score is that banks and lenders will reduce interest rates on loans. Businesses with credit scores of over 660 attract lower interest rates. If you keep your business in good shape for years, it’s possible to even get near-zero-percent loans.

Flexible Loan Terms

A positive business credit score gives you the chance of negotiating better loan terms. Do you want to pay off your car loans in 15 months? No problem.

If you are interested in stretching your mortgage to 100 months, you will earn the right. With an impressive business credit score in Canada, you could lock in longer loan terms.

More Rewards and Financial Incentives

There are many online and TV ads that promise 0% APR offers, credit card rewards, and cashback offers for people with healthy credit scores. If your business requires products and services that pay for themselves, keep your score in good shape.

Lower Insurance Rates

In Canada, many insurance providers offer preferential rates to customers with high credit ratings. Most insurance firms assume that applicants with good credit don’t take unnecessary risks. If you are interested in taking out business insurance, having an excellent credit score is a good idea.

Final thoughts on our easy tips to build credit for your business

Small and medium-sized businesses in Canada can benefit greatly from a high business credit score. The article mentions easy tips to build credit for your business.

Also, ensure you check your reports regularly with TransUnion and Equifax. When your scores are low, we have also provided several suggestions on how to increase them.

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How can I build my credit fast in Canada?

You can build your credit fast in Canada by always paying your bills on time and avoiding defaults on loans. Also, ensure you have fewer mitigations on your business and always behave financially responsibly.

How can I start building credit easily?

You can start building credit easily by getting a credit card and paying off all your debts. Also, to solve credit report errors quickly and avoid waste,

How can I get a high credit limit for my business?

You can get a high-limit business card by having a strong income and less debt. With these factors, you attract more lenders and card issuers.

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July 17, 2023
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