How small businesses can build credit (even in a recession) (2024)

We get it. Starting a business is hard. And it’s even harder when you have poor or nonexistent credit.

Twenty percent of businesses fail in the first year, and about 50% fail in the first five years (source: Bureau of Labor Statistics). The most common cause? Lack of profit and funding.

You might think a recession would be a bad time to start a new business. Still, it can actually be a great opportunity – new ideas and innovations are often born out of tough times or responses to existing problems.

To make it easier for small businesses, Aaron Velazquez startedFairFigure. This platform levels the playing field for the everyday entrepreneur. FairFigure relies on advanced data analytics and technology to give small business owners the tools and insights they need to manage and improve their business credit profiles effectively. Real-time information, practical advice, and valuable resources help to bridge the gap between small businesses and the world of credit so they can avoid being part of that 50%.

What is a Business Credit Score, anyway?

The boring definition is that business credit scores are numerical representations of a business’s creditworthiness and financial stability. They are similar to personal credit scores but are specifically designed for businesses. You can think of them as the heartbeat of a company and the golden ticket to financial flexibility.

Business credit scores are used by lenders, suppliers, and other financial institutions to evaluate the risk associated with extending credit or providing financing to a business. A strong business credit score means more opportunities.

Start building that credit.

Ready to start on your credit-building adventure? FairFigure has some tips on building up your credit history:

1. Separate Personal and Business Finances:Establish a distinct legal entity for your business, such as an LLC or corporation, to separate personal and business finances. Open a dedicated business bank account to manage all business-related transactions.
2. Establish a Business Credit Profile:Start by applying for a business credit card or a small business loan. Even if you don’t need the credit immediately, having it and making timely payments will help build your credit history. FairFigure’s Business Credit Card is a great option.
3. Pay Bills on Time:Timely payment of bills and loans is one of the most critical factors in building good credit. Late payments can significantly impact your credit score.
4. Monitor Your Credit Reports:Regularly check your business credit reports from agencies like Dun & Bradstreet, Experian, and Equifax. Ensure that the information is accurate and dispute any errors you find. All these reports are available in the FairFigure platform for easy reference of your credit.
5. Build Trade References:If relevant to your business, establish relationships with suppliers and vendors who report payment history to business credit bureaus. Consistently paying these trade accounts can positively impact your credit.
6. Diversify Your Credit:A mix of different types of credit, such as credit cards, loans, and trade accounts, can contribute positively to your credit profile.
7. Don’t Close Old Accounts:To enhance your credit score, don’t close old, paid-off accounts, even if they’re not actively used. These accounts contribute to the length of your credit history, a significant factor in your credit score. By maintaining a more extended credit history, you can positively impact your creditworthiness, ultimately working to improve your overall credit score.
8. Limit Applying for New Accounts:Seeking new lines of credit often triggers ahard inquiry. This credit check occurs when a lender reviews your credit report for a lending decision. A hard inquiry can affect your credit score, so it’s not something you want to do often. To boost your score, minimize the frequency of new credit applications. Opening a fresh credit line can reduce your credit history’s average age, a significant factor in your credit score. Maintaining a longer history can improve your creditworthiness.

Building a solid credit history for a small business takes time and effort. It’s a gradual journey that involves demonstrating your financial responsibility and trustworthiness to creditors and lenders over time. As your credit history matures, you’ll gain access to better financing opportunities. We’re talking lower interest rates and more favorable terms. Sounds good, doesn’t it?

And as the recession has reminded us, businesses go through ups and downs. A strong credit history will help you weather financial challenges during market downturns by providing access to credit when it’s needed most.

By following these tips and leveraging FairFigure’s no-cost platform, small businesses can secure a solid financial foundation, access better financing options, and achieve long-term success. This tool saves business owners time, money, and energy to focus on growing their business and connecting with customers and clients. You know, the fun part!

Caption: The FairFigure platform makes it easy for small business owners to keep track of their credit and build a solid financial foundation.

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