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How Long Does it Take to Build Business Credit?

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Just like building a business, building a credit history for your business can take years. For many business owners, business credit is an afterthought until they need capital. Suddenly they’re scrambling with the question, “how long does it take to build business credit?”

The short answer is, it varies. But whether your business is young or established, it’s worth building a credit profile. Business owners who successfully build credit focus on long-term income security and reducing expenses. They also take intentional steps that contribute to strong business credit. In this blog post, you’ll learn the fastest ways to build business credit, and a ballpark estimate for how long it might take.

Why do you need business credit?

The most obvious reason to focus on business credit is to prepare to secure a loan. Business owners often make the mistake of assuming that if everything is going well with their business, there is no need to bother with building business credit. In fact, business credit is used for a lot more than just getting cash.

Small business credit is one of the most important factors that banks consider when determining if your business will succeed. It can also be used by vendors or suppliers considering whether or not to partner with your business. Even if your business doesn’t have an immediate need for a loan, your ability to secure financing is a sure sign to many financial institutions of your business’ overall financial health.

In order to grow, a business needs to be able to access large reserves of cash. If your business wants to buy a large amount of inventory, update or add new equipment, or simply invest in its workforce to grow quickly, it needs liquid capital. Businesses with strong credit history are strong candidates for growth, making them more desirable to potential investors.

Business credit is also a measure of how well a business can survive market stresses. It is pretty rare for a business to have a lot of cash in reserve for emergencies, particularly a new start-up. Young small businesses tend to use any spare cash for improving operations. Your ability to access credit puts your company in a better position to weather an economic storm or an unlucky break. Even if you aren’t looking to grow right this second, strong business credit can provide a safety net.

How long does it take to build business credit?

That’s the million dollar (or more) question.

The amount of time it takes a business to build credit is highly dependent on the operations and business plan of the entity in question. Contrary to popular belief, business credit has very little to do with the total amount of gross receipts brought in by a business. Instead, banks tend to look at factors such as growth potential, net profit, and outside stressors.

This means that there are a lot of factors that can go into determining how long it takes a business to build credit. In fact, your business is always in the process of building credit.

It’s generally true that businesses will struggle for the first six months to obtain any type of credit. Because they are so new, it can be very difficult to find any kind of financing, much less a line of credit with favorable terms. Once a business has six months of established accounts, however, things can get a lot easier.

Typically, it will take a business about three years to establish a level of credit that will support their operations for ninety days. Businesses with low expenses and tactical credit building techniques could establish credit faster. It can take much longer for businesses with higher expenses. Most importantly, the fastest way to establish credit is to be intentional about your transactions and financial practices.

What are the fastest ways to build business credit?

If you’re a business owner who needs to build their credit quickly, there are things that you can do. Try these suggestions.

1. Look for lines of credit based on gross receipts. A line of credit is more like a promise of a loan, rather than actually taking out a loan. They’re typically used in businesses that keep a lot of inventory on hand. Lines of credit are used to purchase merchandise, and are then repaid after that merchandise sells. Over time, more banks have made these types of loans available to other businesses. A line of credit will allow a business to access funds only when needed, and typically costs very little to keep available.

2. Reduce expenses. Businesses that can run lean are more apt to gain the attention of both investors and banks. Even if you don’t want to run your business on a shoestring, having a plan in place to reduce expenses in the event of an emergency or cash crunch can show that the company is able to withstand market stresses.

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3. Improve your credit score. Paying bills on time (especially other loan payments), and establishing lines of credit that are rarely used can go a long way to improving the credit score of your business. Use a charge card if possible, as this is a short-term debt that is repaid and documented every month. Be sure to work with banks and partners that report your transactions to the credit bureaus.

For a complete overview on business credit and how to maintain it, read the Complete Guide to Small Business Credit.