Key takeaways

  • For a startup that doesn’t have a business credit history, lenders will look at the entrepreneur’s personal credit history to gauge business risk.
  • Prepare your personal credit for small-business success by paying off old debts and keeping personal and business expenses separate.
  • Build your business credit history by applying for a small business credit card and making on-time payments.
  • Once your business has been running for a while, you can generate a business credit report that can allow you to access additional financing sources such as small business loans.

For many entrepreneurs, starting a small business is no small financial feat. According to 2024 research conducted by the retail platform Shopify, small business owners spend an average of $40,000 in their first year. While solopreneurs and freelancers may spend less on their small businesses, you can expect to spend even more if you decide to build out your team. Every employee you hire adds to your total cost, and the average business spends 18.8 percent of its first-year budget on these new hires.

Some companies require an even larger amount of capital to launch. For example, you may want to open a restaurant and need to purchase all the equipment and fixtures. Or maybe you want to buy, renovate and flip property. Whatever the case, if you don’t have the cash on hand or investors willing to provide the money, borrowing may be your best option. If so, you’ll need your credit to be especially attractive to lenders — especially if you want to expand beyond business credit cards and start applying for small business loans.

Here’s how to prepare your credit for your big business adventure:

Pull your personal credit report

If this is your first foray into business borrowing, you will not have a business credit report. That means the information that appears on your consumer credit report will be used to determine your eligibility for small business credit.

Pull all three of your credit reporting files from TransUnion, Equifax and Experian. The best place to get them is from, which is a government-authorized site that provides free weekly access to each of your reports. Read your credit reports carefully. If you see negative information that is incorrect, file a dispute with the credit reporting agency. They have 30 days to investigate your claim, so get this done as quickly as possible — especially if you’re thinking about applying for business credit cards soon.

You’ll want to have plenty of positive information on your reports, too. A thin credit file, which means you have few or no listed accounts, does you no favors. A lender won’t know what kind of risk they’ll take with you as a borrower.

Build your personal credit score

If you don’t have the credit history you need, consider opening one or two personal credit cards before you begin applying for business credit.

Starter credit cards, for example, are good choices for people who want to boost their credit scores as quickly. Use them to make a few small purchases every month and then pay off the balances in full. Depending on your situation, you may also want to apply for a credit-building card that can help you recover from previous credit mistakes. As you establish a history of on-time payment and low monthly balances, consider applying for a rewards credit card to continue to improve your credit score while earning rewards on your purchases.

You’ll get a FICO credit score after at least one account is open and active for six months, and a VantageScore can be generated in a month or two after one account is on your file. Both scoring systems measure your creditworthiness based on the data on your credit files, and update your credit scores regularly. The numbers range from 300 to 850, and you’re more likely to qualify for business credit when your scores are in the mid-700s and higher.

As you build your credit, focus on making on-time payments — and paying off your balances in full as often as possible. That’s what business lenders are looking for, according to Everett Sands, CEO of Lendistry.

“The most important thing to a lender is the borrower’s ability to repay the loan,” Sands says.

Apply for a business credit card

If this is your first foray into business borrowing, you’ll probably want to start with a business credit card. The best business credit cards come with enough of a credit limit to allow you to cover business expenses even if you don’t have a lot of cash flow coming in yet. That said, you’ll want to make sure you can pay off any purchases you make on your business credit card. If you carry a balance from month to month, try to keep it as low as possible — and develop a plan for increasing your business’s income so you can pay your balance in full as soon as you can.

Many business credit cards offer rewards designed to help small-business owners save money. The Ink Business Cash® Credit Card, for example, offers:

  • 5 percent cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year
  • 2 percent cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year
  • 1 percent cash back on all other purchases

Plus, new cardholders can earn a welcome bonus worth as much as $750 cash back (earn $350 when you spend $3,000 in the first three months and another $400 when you spend $6,000 total in the first six months after account opening). The Ink Cash also offers a 0 percent introductory APR on purchases for 12 months (then an 18.49 percent to 24.49 percent variable APR thereafter) to help you manage those new-business expenses.

The more you know about how business credit cards work and how to choose a business credit card for your small business, the better prepared you’ll be to start using business credit cards to build a positive credit history. No matter what happens during your first year of small-business ownership, make sure you make your credit card payments on time. Even if you only pay the minimum on your credit accounts, it’s better than nothing — and it may help keep you from building the kind of negative credit history that could prevent you from getting business credit in the future.

Pull your business credit report

You won’t have a business credit report until you’ve established your small business to the point at which  creditors and vendors can begin supplying information to the business credit reporting agencies.

That said, you can often establish a positive business credit history simply by opening a business credit card and making your payments in full every month — even if you aren’t yet working closely with vendors and suppliers. Many startups are run out of home offices, after all, and small-business owners who use their business credit cards to autopay subscription purchases like Adobe Creative Cloud or Microsoft 365 can build the credit history they need to generate a business credit report.

The most common business credit reports are developed by Dun & Bradstreet, Experian Business and Equifax Business. Your business credit reports will contain the information necessary for a lender to make a wise decision about the health of your business and your credit history. For example, it will show your record of paying suppliers and repaying lenders, your current bank balances and activity, and — if applicable — the company’s assets, inventory and sales.

Your business credit report also shows any liens, judgments and bankruptcies associated with your business, and those kinds of derogatory marks can remain on your business credit report for years to come.

As with your consumer credit reports, the most important factor in your business credit report will be your payment history. If you’ve borrowed money and made on-time payments according to the terms of the contract, issuers can see you’re a responsible person to do business with. The longer you’ve successfully used business credit products this way, the greater confidence a lender will have in you as a business owner.

Apply for loans to fund your business

Once you’ve established a positive business credit history and have the business credit report to prove it, you can start applying for small business loans. You can get business loans from the Small Business Administration, as well as conventional banks, credit unions, online lenders and microlenders. With a business loan, you borrow a fixed amount and send steady monthly payments until the loan is paid off. The biggest loans with the lowest interest rates will be available to you if you have been in business for a couple of years and have good credit.

You may also want to consider a business line of credit (LOC). These flexible loans work like a credit card, and allow you to borrow against a preset credit limit. The lender will review your credit score, annual revenue and the length of time you’ve been in business to determine if you qualify.

A business that you’ve had for a long time will help you qualify for a large line of credit or a substantial business loan — but even if you’re just getting started, a strong revenue base plus collateral can put you in a positive position. What could get in the way? Debt.

Most lenders will assess your debt-to-income ratio (DTI) when deciding whether you qualify for a loan. Your DTI compares the total of your gross monthly earnings to your monthly creditor payments. So if 40 percent of your gross monthly profits is already promised to creditors, your DTI is 40 percent. This ratio helps lenders know if you can afford to take on the payment. The lower your DTI, the better — so before applying, you may want to pay off as much of your current round of financial obligations as you can.

Factors such as past revenue that back your ability to repay, marketing and sales data that support your future projections and contracts in execution may also help qualify you for a loan, according to Sands.

“The stronger the applicant’s credit profile and financial information,” he explains, “the more likely they are to receive the loan.”

Once you have the credit products you need, use them to your advantage. Leveraging a bank’s deep assets to fund your startup costs is a great strategy, but that’s just the beginning. Since all of this borrowing and repaying activity will appear on your credit reports, only take out the amount you can repay — and make sure you make on-time payments every month. That way, you’ll be prepared to take on bigger and better credit cards and loans once your business is ready for them.

The bottom line

In the end, remember that banks and other credit providers want to lend money to qualified borrowers. It’s part of their business model, after all. So take action now to become the most appealing borrower you can be. If your personal credit isn’t where it should be to apply for a business credit card, start there.

Once you’ve established a positive business credit history, you can begin applying for small business loans. As your business — and your business’s creditworthiness — continue to grow, higher limits and loans might be within reach.