June 25, 2025 By Alicia Smith

You've launched your dream business and need financing to take it to the next level, but there's a problem: lenders want to see business credit history that you simply don't have yet. This frustrating catch-22 leaves many small business owners feeling stuck—needing credit to build credit, but unable to access either without the other.

The challenge becomes even more complicated when you have limited personal credit history. Traditional lenders typically rely on personal credit scores as a starting point, and without that foundation, accessing business financing may seem nearly impossible. Many business owners find themselves wondering if their dreams of growth and expansion are simply out of reach.

Fortunately, there's a solution. Business credit, much like personal credit, is something you may build, protect, and cultivate over time with the right approach. While banks and other lending institutions will initially check your personal credit score, they'll generally expect you to have some form of business credit history after operating for longer than a year. Even if you don't have any personal credit, it may still be possible to get a business loan or other financial products with strategic planning and patience.

Understanding credit score components

Both your personal and business credit scores monitor your financial obligations, but they operate differently. The five key factors for FICO's personal credit scores include:

  • Payment History (35%) 
  • Credit Utilization (30%) 
  • Length of Credit History (15%) 
  • Credit Mix (10%) 
  • New Credit (10%) 

Based on these metrics, we know that late payments generally represent a more significant decrease in your credit score than the number of credit accounts you possess. A good payment history and low credit utilization will benefit consumers, but what about businesses?

Business credit takes a slightly different approach to calculating credit scores. Payment history, business age, employee count, and public filings are important factors. The main business reporting agencies—Dun & Bradstreet®, Equifax®, and Experian®—each have their own scoring models, but payment history typically carries the heaviest weight across all three.

Business credit scores focus on longevity, so the sooner you obtain an employer identification number (EIN), the better. However, unless you can gain access to financial products, you typically won't be able to establish any credit at all, business or otherwise.

Route 1: Build personal credit first

Generally, the most straightforward path to earning business credit is by leveraging your personal credit. If you already have a strong personal credit score, you'll typically gain access to small business loans, business insurance premiums, higher credit limits, and the ability to raise investor-backed funds.

However, if you have limited personal credit history, you'll typically need to begin your credit journey by opening credit cards, secured credit cards, or store credit cards. Alternatively, you could become an authorized user for a primary account holder, provided they have excellent credit.

If you're not interested in building your personal credit first, you may build your business credit initially, but you'll likely have to put both your personal and business credit scores on the line.

Route 2: Build business credit first

Companies with small ownership structures and limited credit history typically have to sign a personal guarantee before obtaining a business credit card or other business financial products.

Although business and personal credit scores are separate, your defaulted business loan may show up on your personal credit history if your personal guarantee includes this clause. When you give a personal guarantee, you essentially act as a co-signer to your business debts if you default.

A sole proprietor operates as both a business and personal entity, meaning you'll affect both your personal and business credit scores if you default. Banks will often rely on personal credit scores for sole proprietors who apply for business loans or use the better score of the two.

How to build business credit with limited credit history

Before taking any other steps, you must establish your business entity, create one or more business banking accounts, and apply for an EIN. Depending on the nature of your business, you may want to borrow money from lenders who report your payments to the credit bureaus.

Keep business and personal credit separate

Now that you have the basics established, you may begin building business credit. Remember that personal and business credit are separate entities, so what you do to increase your personal credit score may not affect your business score across all three credit bureaus.

Personal transactions, like rent and utilities, may appear on your business credit score if you use a business product to pay them. However, you run the risk of mixing up your finances. Unless you work from home, avoid paying personal bills with business accounts, or you'll have a complicated tax year ahead.

Consider a secured or starter credit card

Since businesses can't apply for student credit cards, you should generally reserve those financial products for your personal accounts. Whether they're business or personal accounts, you may use secured credit cards to improve or establish your credit history.

Some people who have declared bankruptcy have used secured credit cards to improve their scores significantly within two years, and you may reach the coveted 700 credit score even faster. Consider starting by putting $250-$1,000 on a secured credit card, then consider repeating this step again six months and a year from now.

Use your business credit cards for all business purchases to improve your business credit score. You may apply for starter credit cards that offer cash back, lower interest rates, and other rewards as you improve your credit score.

Apply for a working capital loan

A working capital loan helps finance a business's everyday operational needs. If you qualify, an SBA 7(a) loan is generally regarded as the best option for working capital financing. The 7(a) Loan Program is the Small Business Administration's primary program for helping small businesses with financing. The SBA doesn't actually make direct loans; instead, it provides loan guarantees, promising to pay back a certain percentage of your loan if you're unable to repay.

Pay all of your bills on time

Having a few credit cards and a loan won't be enough to build credit on their own. You still need to ensure you pay all of your bills before the due date. Otherwise, you'll accumulate interest and potentially damage your credit score. Only take on as much debt as you may comfortably afford to avoid financial strain on your business.

At the same time, don't neglect your personal credit under the misconception that business credit alone will suffice. Banks generally like to examine both scores before approving financial products, whether you're a sole proprietor or LLC.

Common mistakes to avoid when building business credit

Building business credit requires patience and strategic thinking, but many small business owners unknowingly sabotage their progress with common missteps. These mistakes may set back your credit-building efforts by months or even years, making it harder to access the financing you need when opportunities arise. Understanding these pitfalls before you encounter them may save you significant time and frustration. The good news is that most of these mistakes are entirely preventable with the right knowledge and approach. Here are the most critical errors to avoid as you build your business credit foundation.

Mixing personal and business expenses

One of the most damaging mistakes small business owners make is using business credit cards for personal expenses or vice versa. This practice not only complicates your bookkeeping and tax preparation but may also raise red flags with credit bureaus and lenders. Keep your business and personal finances completely separate from day one.

Applying for too much credit too quickly

While it's tempting to apply for multiple credit cards and loans once you start building credit, this approach generally backfires. Multiple hard inquiries in a short period may lower your credit score and signal to lenders that you're desperate for credit or may be overextending yourself financially.

Neglecting to monitor your credit reports

Many business owners assume their credit is building properly without actively monitoring their reports. Regularly checking your business credit reports from all three major bureaus helps you catch errors early and ensures your positive payment history is being recorded correctly.

Explore business financing options

Once you've established some business credit history, you'll have access to various financing options that may help fuel your company's growth. Different types of financing serve different purposes, so understanding your options helps you choose the right tool for your specific needs. Whether you're looking to manage cash flow, purchase equipment, or expand operations, there's likely a financing solution that fits your situation. The key is matching the right type of financing to your business goals and repayment capacity. Below are some popular financing options to consider as your credit profile strengthens.

SBA loans for long-term growth

SBA loans offer some of the most favorable terms available to small businesses, with lower interest rates and longer repayment periods than traditional bank loans. These loans are ideal for major purchases like equipment, real estate, or significant business expansion projects that require substantial capital.

Lines of credit for flexible access

A business line of credit provides flexible access to funds when you need them, similar to a credit card but often with better terms. You only pay interest on the amount you use, making it perfect for managing seasonal cash flow fluctuations or unexpected expenses.

Equipment financing for specific purchases

Equipment financing allows you to purchase necessary business equipment while spreading the cost over time. The equipment itself typically serves as collateral, which may make it easier to qualify for even with limited credit history.

Final thoughts on building credit history

Building business credit with limited history may seem daunting, but every successful small business owner started exactly where you are now. The key is taking that first step and remaining consistent with your credit-building efforts. Remember, this isn't just about accessing loans—strong business credit generally opens doors to better terms, higher credit limits, and more financing options as your business grows.

Your business deserves every opportunity to thrive, and establishing solid credit is one of the most important investments you may make in your company's future. Start with one or two credit-building strategies that feel manageable, and gradually expand your efforts as you become more comfortable with the process.