To get a business loan, you may need to buff personal credit

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

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Dear Your Business Credit,
How do I earn more business credit for my business? I want to be able to apply for loans. Thank you. -- Gerald


Dear Gerald,
Building better business credit is a little like getting in shape. It'll be a lot easier to achieve your goal if you try to maintain healthy habits year round than if you try to become as fit as Jillian Michaels or Shaun T overnight.

It starts with adopting disciplines that will ensure you pay your bills on time. For instance, setting specific sales goals and tracking your progress toward meeting them each week can help you keep money flowing into the business. When you always know how you're doing in meeting your revenue goals, you'll be able to take action quickly if you fall behind. For instance, a retailer might decide to hold a sidewalk sale if customers aren't showing up.

If you are not paid at the time of purchase, invoicing customers on time and keeping track of how fast they're paying you is also important. To build cash reserves, some businesses give customers a discount if they pay in advance. By getting paid more quickly, you'll be able to reduce your need to borrow money for business emergencies -- like not being able to pay the electric bill.

Once you have these habits in place, you'll be in a better position to take other steps to build credit for your business. If you don't have a business checking account, opening one can help you start to establish your business as a financial entity. Also apply for a small-business credit card that you use exclusively for your business, so you build a track record of timely payments.

If you purchase office supplies from a store that offers credit, paying your bill on time can be another way to demonstrate your creditworthiness. For more on how to build a strong credit profile for your company, read "How businesses can start on the road to credit."

Once you start building your credit profile, make sure your business is on the radar screen of credit reporting agencies. I addressed how to make sure they are tracking you in a previous column, "Business loans from banks: 5 ways to boost your approval odds."

If getting a loan is your primary goal, then I'd concentrate on building your personal credit, too. Let's assume you want a bank loan, because they have the best interest rates. Banks will generally want you to personally guarantee small-business loans, unless your business is very well established.

You may not want to hear that. Many business owners do not want to put their personal assets at risk. But if you are not willing to give a personal guarantee, you will have few options, other than more costly alternative loans.

There are many steps you can take to build your personal credit, such a paying down large balances on your cards to reduce the percentage of your available credit you are using. For tips on how to do that, read "7 building blocks of good credit."

Good luck in getting your loan!

See related: Pros, cons of getting a business card for personal use, Dangers of putting business expenses on a personal card, Business or personal credit: Which can be built faster? 

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Updated: 02-22-2019