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Importance of Building Business Credit History

September 25, 2023
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6 mins


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Building business credit is an essential business obligation for serious entrepreneurs. When they look towards potential options for a capital injection, these business owners often enlist the assistance of a commercial finance broker or lender.

Lenders and creditors want to ensure that their money grows when they give it to a business entity—and one of the best forms of reassurance they’ll seek is a reputed business credit history.

That said, what are the perks businesses can enjoy from building business credit? What is a business credit score? How do you go about building business credit in the first place? 

Let’s explore the importance of building a business credit history and how you can improve your business credit score organically.

The benefits of having good business credit

While small-time entrepreneurs can get away with using a personal credit card for business spending activities, going this route can put the business at a massive disadvantage once they look towards scaling.

As such, it’s essential to establish and prioritise building business credit right from the get-go. Here are some key benefits of having good business credit:

Promotes Credibility Among Stakeholders

Legitimate business entities are eager to partner with other established businesses. A hallmark element businesses seek—whether they’re a supplier, lender, or potential business partner—is how well your enterprise handles its finances. 

You will be perceived as trustworthy and reliable if you have a good business credit history. This allows your business to enjoy increased opportunities you may otherwise not have access to if you lacked ample credit.

Furthermore, good business credit can help you gain more flexible terms with your suppliers. This makes your supply chain management systems open and loose, ultimately helping you make more suitable business decisions according to your needs.

1. Access to better financing options

Credit agencies may seem needlessly rigid in their rigorous loaning service, but it’s important to know that at the end of the day, they’re still a business like yours looking to survive and thrive. 

They wouldn’t want to shoot themselves in the foot by partnering with a risky business that’s on the brink of collapse.

As such, if you want to attain favourable terms for your business loans with these institutions, having a high business credit score is important. This business score is proof showing them that you can pay back the loan terms on time.  

By having a good business credit score, your commercial finance broker or agent will also be more likely to see eye-to-eye with your exact business needs, enabling you access to business overdrafts and long-term loans that your business can use and dutifully pay back.

2. Improved credit limits

Good personal credit can grant you adequate funding, but for larger-scale operations, there’s no better way to go than to access loans while leveraging business credit.

Business credit is designed to handle the spending needs of an entire organisation. This is unlike personal credit, which is tailored to an individual’s spending habits. 

That said, not just any business can enjoy the increase in credit limit. You’ll have to prove to the loan provider that your business is gaining substantial amounts of revenue and has a good grasp on its cash flow. 

Once you’ve established that you’re running a successful company to your lender, they’ll happily provide you with a higher credit limit. 

3. Helps scale your business 

Need a certain piece of equipment to bring your business to the next level? Or perhaps you want to stock up on a certain piece of inventory that’s selling like hotcakes—but lack the funds to do so?

If so, building business credit as soon as possible is a good idea. You’ll put yourself and your business at a competitive advantage by leveraging business credit due to the increased purchasing power and growth opportunities.

4. Access to exclusive perks

It doesn’t need to be said that there’s a considerable risk in letting your staff use your personal credit card. But with a business credit line, you can issue a business credit card specifically meant for your employees. 

But that is by no means the end of the perks of having your own business credit. With a business credit, you can also enjoy more streamlined expense tracking and better reporting tools for keeping track of your finances for auditing and tax purposes.

Furthermore, having a proper business credit line can also serve as insurance and help protect you against fraud. This can save you a lot of headaches and stress in the long run. 

Still need more reasons to switch to business credit? View Westpac’s article here.


4 ways to boost your business credit history

There’s no singular way to boost business credit history fast. 

However, employing these four habits can organically improve your business credit over time, allowing you to enjoy the full breadth of opportunities listed above.

1. Make timely payments on your bills

This one’s fairly self-explanatory — but it can’t be stressed enough. You should not make any delays in bill payments if you want to be seen as a respectable business entity. 

Any late monthly repayment can cause a dent in your overall credit score. This can stay in your credit score report for years, so strive to use credit strategically.

2. Pay any pending tax Dues

The Australian Taxation Office keeps a thorough record of your tax payments periodically. 

If you are anything short of a clean, green slate, make it a priority to settle any debts you have with the ATO. Moving forward, also be sure to make payments on time and with pinpoint accuracy.

3. Regularly monitor your credit reports

You or your accounting team should periodically check the business credit reports and note any discrepancies or problem areas that need addressing. 

For instance, a transaction could be wrongfully marked as late payment when it was actually paid on time, or perhaps you’d want to contest a negative entry that’s in your report far longer than it should.

Once such a problem has been spotted, be sure to raise and dispute it to relevant credit bureaus. This can give you a chance to rectify any negative reports to your credit, making your business look more favourable in the eyes of credit agencies. 

4. Reduce your credit utilisation ratio

A credit utilisation ratio is an indicator of how much money you get on credit over your actual credit allowance. 

If you’re frequently on the brink of maxing out your credit cards, you could be seen as a red flag to loan providers and therefore run the risk of seeing a rejected application in your email. To add insult to injury, this rejection can also lower your credit score.

On the flip side, if you have a history of using only a small amount of credit per month, this can indicate that you have a good hold of your finances and other bills. 

For reference, a credit utilization ratio of under 30% is optimal for businesses looking to build their business credit score.

Want to check your business credit history? Equifax can provide a business credit file to instantly show your business’ credit history and see what lenders and suppliers see.

Speaking with a professional about your business credit history

The Commercial Finance Broker team at Inovayt specialise in working with business owners to gain access to funds to grow their business and have extensive knowledge of impacts on how business credit history can slow your growth if it’s not favourable to the potential lender. Speak with the Inovayt Commercial Finance team today to grow your business.

Wanting to know your business credit history?


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