Building business credit: How to avoid the catch 22 of being a start-up

As a new business, it can be impossible to develop a good credit rating when you can’t access any credit. Here’s four tips to help improve your chances…

With the number of start-up businesses hitting a record high in 2014, it’s clear that more and more entrepreneurs are taking the plunge and setting up their own businesses.

However while running your own business is rewarding, it comes with a host of challenges. When you are working hard to establish and grow your start-up business, you will undoubtedly come up against an array of barriers and obstacles on your road to success.

Building business credit can be one such major issue for start-up businesses, particularly in today’s economic climate, and can be the difference between success and failure.

One of the key problems is that many commercial banks and traditional lenders tend to be reluctant to put down any money until a start-up has proven itself with a strong and positive credit history.

But how can you be expected to develop a good credit record when you aren’t able to access any credit?

Here are four essential tips for building business credit for your start up business:

1. Open a business bank account

To build up your business credit, it’s important that there is at least one bank account in the company’s name, and the earlier you open the account the better.

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Once the account is open, make sure you use it. Build up the use of the account to demonstrate your business’ turnover.

It’s also important that you make sure there is always enough money in your account to cover any bills or payments. If there isn’t, this may impact negatively upon your business’ credit score.

2. Make sure your personal credit is in check

A good personal credit record is extremely important for a start-up business.

Although the whole point of building up your business credit is to keep your business and personal finances separate, until your business has built a credit rating in its own right, all eligibility for lending is based on the credit history of the business owners or directors.

When you are a relatively new start-up company, you will often find that creditors will look at your personal credit history, and you may be asked to sign a personal guarantee on any loan or credit taken out against the business.

It’s well worth checking your personal credit report using an online service such as CreditExpert credit check so you can identify any potential barriers and work on areas that need improving.

3. Build a credit history

Just like with your personal credit score, if your business has no borrowing history, this can affect your chances of borrowing in the same way that bad credit would. You need to build a history – the more lenders that report a good payment history for your business, the better your business credit will be.

Consider opening a credit card in the name of the business and use it wisely. Keep your balance low and always make your payments on time, this will allow you to build a positive history for your start up.

4. Get your accounts in check

If you are a limited company, ensure that you file the relevant accounts with Companies House. If you are a ‘small company’, (under 50 employees and less than £6.5m turnover), or micro-business, (under 10 employees and turnover of less than £632,000), which most early stage businesses will be, you can file abbreviated reports but it’s still crucial that you complete the correct information. Good accounting will reflect well on your business’ credit rating.


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