How to Build Business Credit Fast in Canada: 10-Step Guide

10 min read

Establishing business credit will help your Canadian business increase its borrowing power and help secure trade credit and future financing. By monitoring and improving your credit profile, lenders and underwriters checking your business payment history will see everything they need to mark your application approved.

A good credit score will also make it easy for you to secure better options for payment with Canadian suppliers, lenders, and vendors. This is the simplest way of building and monitoring your business credit.

The three main business credit bureaus in Canada are Equifax, TransUnion, and Dun & Bradstreet, so remember to pay them their due attention in all credit matters related to your business finances.

Steps To Business Credit Building

Follow the ordered steps below to ensure you start building up your business credit quickly and are able to consistently maintain it.

Identify Your Business Structure

So, once you’ve chosen the right business entity, you must now identify the structure of your business. This means getting specific details squared away before you can set up a business bank account, or a business credit card.

Register Business Entity

This is the first step towards building business credit. Your business must exist, and it should be a legal business that’s separated from your personal finances.

This can be done through establishing a corporation, proprietorship, cooperative, or partnership.  Any of these will do and shall help you build business credit quickly.

Open a Business Bank Account

You are now eligible to open a business bank account, that will give you access to a business credit card. This is what you will use in building business credit. Personal credit cannot help you with business credit reporting agencies, regardless of how great your personal credit is.

When trying to identify how to build business credit, your business credit scores will be used.

It really doesn’t matter how low your business credit report shows, the process is slow and in the end, you will achieve success if you are patient. You must however show that you are responsibly using your credit.

Start Establishing Business Credit

You shall start building your business credit at the three largest credit bureaus in Canada; Transunion, Dun & Bradstreet, and Equifax.

What these major business credit bureaus will do is to evaluate your business credit by checking and accumulating information from your public records, legal filings, and the creditors you are working with.

Obtain a Business Credit Card

It is now time to get a business credit card. This card will be used for payment of your business purchases, which will then be reported to the business credit bureau of choice.

Remember that personal and business finances are separated in all these, and you cannot use your personal credit card to build good business credit.

If you have a limited credit history, you should consider a secured business credit card that will help build your business credit history, whilst ensuring you keep an eye on your business expenses.

When you start making payments on this credit card and reporting to the business credit agencies, it will be the first major steps you will make towards improving your business credit.

Apply for Net 30 Vendor Credit

The next step on how to build business credit is to establish some tradelines with suppliers and vendors.  Tradelines are like credit accounts on your business credit report. They provide information to the business credit bureau for updating your history with credit management.

Working with suppliers and vendors to establish relationships will be very good when establishing business credit.

Every limited liability company that is recognized as a business entity, should have a dedicated business phone line and an employer identification number where the suppliers and vendors can call and do business.

They will then be reporting your credit history to the major business credit bureaus. This process will teach you how to build business credit.

You will then start establishing business credit with these companies.  Additionally, you could ask them to specifically report your payment and credit history to specific credit reporting agencies as you establish a credit line with them.

A business credit bureau like Dun & Bradstreet will require you to have at least three tradelines with them, before giving you a PAYDEX score. This is used to track business credit.

What Does Net 30 mean?

Net 30 means that your vendors can give you 30 days to pay off any purchases you have made with them. These are good avenues to establishing credit lines.

Monitor Checking Account

Your business checking account will also be evaluated, and the business credit cards you hold. All of these are used to create a business credit file and a business credit profile.

They will then give you an employer identification number, and a business credit score. This is a number that typically ranges from 0 – 100 and the higher your business credit score, the higher your creditworthiness.

The business credit reporting agency will be used by lenders to check your creditworthiness. This then determines the interest rates they will offer you on business loans.

Build Credit History

Your quest for how to build business credit will also involve a positive business credit history. Various business credit agencies make use of several factors to determine your business’s credit score.

One thing you should know is that poor personal credit is not included.

The most consistent way of building business credit scores would be by making all your payments on time.

Late payments usually affect your business credit reports negatively. To avoid this setback, ensure that you have set payment alerts on all the business payments such as a business loan that’s due or automating your business credit card payments.

When you consistently develop a habit of paying in full and early, you will do wonders for your business credit report.

A business credit profile should show an excellent payment history on your business credit card so that a credit bureau like Dun & Bradstreet gives you perfect credit scores.

The balances you carry on your business credit card will affect your credit score. Always keep an eye on your overall business credit utilization ratio.

This refers to your credit card balances concerning the overall total credit. The higher the business credit card ratio is, the high the risk of the credit agencies assigning you to default on your debt.

Generally, it is recommended that your business credit utilization ratio should be between 25 and 30%.

Monitoring Credit Reports

Building business credit is not an easy journey. Various aspects must be considered.  One of these aspects is the process of monitoring your business credit profile and business credit report.

Before qualifying for a business loan, the creditor will use the business credit profile to identify whether you can qualify or not.

Vendors will specifically be looking for your payment history and the status of your business credit score. Do not borrow what you cannot pay off.  This will only make your journey to building business credit worse.

Additionally, check on your business credit cards. Don’t take on more than you can pay. Responsible borrowing coupled with timely payments is the main aspect of building business credit.

Obtaining Business Financing

Good business credit will benefit your business greatly. It will open avenues for you to get financing. Lenders usually look at the business credit reports and business credit profile through your employer identification number when granting you a business loan.

A good and high business credit score when applying e.g. California finance lender loans will make it easy for you to receive approval for the loan with good interest rates.

A small business credit line will also require a good credit score. Additionally, your business checking account should be able to service the loan. Personal credit reports are never used when applying for a small business loan.

Maintain Credit Rating

How can you do this? It is important when trying to build business credit that you open your credit accounts responsibly. Start by paying off what you owe first, before going for more financing.

Always ensure that your lenders update your business’s credit history with the credit bureaus as this will help improve your report with the bureaus such as the Experian Business Credit Report Bureau.

Other than the business’s credit report, credit bureaus also keep a copy of your public business and personal credit information such as bankruptcies, judgments, and liens.

All of these factor into the overall credit score of your business. If you have bad credit reports, these will stain your business for the next ten years. Ensure to avoid them as much as possible to establish credit for your business.

Business Credit Scores

What are they? Business credit scores and personal credit scores are different. Both are however issued by business credit bureaus.

Personal credit has scores ranging from 300 to 850. This however differs from credit bureau to bureau.  Of course, as mentioned severally above, the higher the score the higher your creditworthiness.

Business credit scores in Canada specifically vary between the two main bureaus i.e. Transunion and Equifax as follows:

  • Transunion credit bureau score ranges from 400 to 800
  • Equifax credit score is more detailed and includes information such as;
  • Business credit information – CI. In this case, the range is between 0 and 70. For CI, a low value indicates a good credit history, while a higher one represents bad credit history.
  • Payment index – ranges between 0 and 99.
  • Business failure risk  – this one ranges between 1001 and 1722.

The management of these scores will help establish trade lines, and in building business credit limits.

Build Business Credit Even Faster

How can You Build Business Credit Fast? To build business credit fast, there are two main steps;

  1. Ensure that you use your business credit card for business-related purchases only.
  2. Ensure that you use as much of the business credit as possible without making you look dependent on it.

Business Credit Card Purchases

It is important to always use your business credit cards for business purchases only. Whenever you open a new business, your business credit card purchases should be carefully geared towards the business.

  • You must never mix your business credit for business purchases with your personal purchases.
  • You must keep your personal credit history separate from your business history.

You should work on weaning your business credit off its reliance on your personal credit. A legal or financial separation is needed. Personal credit reports should be for personal purchases only.

Your personal credit scores and personal credit report should only be used for personal purchases and must never be used in building business credit.

Credit Over Cash Flow

Always use business credit as much as possible, but ensure you only look motivated not desperate. Your aim should be to use credit whenever you can instead of cash flow.

As a business owner, you must maintain your business credit card utilization below 30% at all times. Then when your bill becomes due, pay it in full and on time.

Divide Your Finances

Now, whether you have a small business that’s a sole proprietorship or an incorporated business, you should ensure that your business, and personal credit are separate.

Isolation will ensure your personal credit score and business credit score are accurate, clean and represent the actual activity for the business and not personal expenses.

Maintain Accurate Information

Check your small business credit score regularly and report to the credit bureaus in case of any errors.

Eliminating the errors in good time will help improve the credit scores as this reveals a possible fraud.

Always Use Available Credit

One factor that is considered in determining your business credit score is credit utilization. This benefits your credit score and ensures that you build credit with credit. Do not leave your business credit availability idle for a long time.

Of course, there should be a balancing act so you don’t max it out either, and a good credit utilization rate should be between 20 and 30%.

Final Thoughts

In the journey towards building business credit, a business owner must be willing to exercise patience. This doesn’t happen overnight and all of the above factors must be put into place before the credit reporting bureaus can provide you with a credit score.