A good credit score is crucial when taking out a small business loan. Take these four simple steps to help you establish — and build upon — your credit history.

A poor business credit score can prevent you from obtaining a small business loan. Improve your odds of getting a “yes” from your lender by establishing your business’s credit history now, well before you need it. 

This is particularly important if your personal credit score has taken a hit over the past few years. For businesses with fewer than 20 employees, personal and business credit is closely linked and your personal credit history may be used as a reference if you don’t have an established business credit history.

Here is how to establish and build your business’s credit score so it will be ready when you need it.

1. Prepare your business plan

If you’re eventually planning to apply for a small business loan, a business plan is essential. A business plan and financial documents, such as the business’s balance sheet, profit and loss and cash flow statements are mandatory for the vast majority of Small Business Administration loans.

2. Separate your personal credit from business credit

Sole proprietorships and general partnerships are common business structures, but they sometimes mingle personal and business finances, which means that if you have personal credit problems, they could affect how lenders view your business.

A Limited Liability Corporation (LLC) or other corporate structure allows you to separate your business dealings from your personal finances and can help to establish credit as a business entity.

3. Register to improve your business credit rating

Business credit is reported voluntarily. Even if your business has well-established credit accounts with suppliers, you might not be on the radar of credit-reporting agencies and your business credit rating may suffer. Register with agencies such as Dun & Bradstreet or Experian to be listed on their databases. That way, when a lender makes credit inquiries, they’ll find that if you make payments as promised, the credit rating of your business will improve.

Similarly, encourage your creditors to report payment histories to at least one of the business credit-reporting agencies. The more records of a solid payment history, the better for your business’s credit score.

4. Manage your business debt

When you open a credit account for your business, follow these basic guidelines to establish and improve your credit rating:

• Consistently pay on time. Debt payment history is a key piece of reporting data and essential to maintaining an acceptable credit score. 
• Keep your debt ratio (the amount you owe versus the amount of available credit) to no more than 30 percent of the credit limit, which demonstrates your ability to have credit without abusing it. 
• Once you’ve established a solid payment history, request a credit limit increase (even if you don’t need it) to lower your debt-to-credit ratio. 
• Use your credit accounts from time to time to keep your credit active and maintain a credit score. Zero activity on your credit accounts might actually lower your credit score. Your objective is to demonstrate your ability to have credit without abusing it.
   

By proactively establishing business credit now, you’ll position your business for success when you apply for a loan.

Learn more about U.S. Bank business loans and lines of credit.