A strong credit profile is one of the cornerstones of a successful business. As with an individual credit score, having an excellent business credit profile will mean the business has a better chance of securing finance, such as a line of credit, asset finance or business loan.

Building a credit profile from scratch can be challenging. This is especially true for newer businesses that need funding to get off the ground and get cash flow going but lack the credit history to prove their creditworthiness to banks and investors. You often hear stories of startups initially funding the business with personal credit cards as they are unable to secure finance. Atlassian was famously founded on a $10,000 credit card debt.

As successful as Atlassian now is, there are steps Australian business owners and entrepreneurs can take to boost their credit profile and secure cheaper finance than what credit cards can offer. Let’s explore business credit profiles in more detail and outline how building your credit profile can improve your chances of securing credit.

What is business credit?

Business credit relates to the creditworthiness of an entity, with a business credit profile outlining your business’s credit history, payment habits, and overall financial stability. A business credit score is the numerical representation of the findings from this report, which lenders and potential clients/suppliers use to assess a business’s ability to manage their finances responsibly.

There are three main types of business credit:

• Business loans from commercial credit providers
• Asset and equipment finance such as motor vehicle finance
• Trade credit – a line of credit from a supplier to a customer.

If a business seeks external funding, a key component of the finance application process will be a company credit check. This type of reporting reveals essential information to the lender that helps to inform whether the credit applicant presents an acceptable level of risk, as well as the interest rate and payment terms for the business.

For example, CreditorWatch’s company credit reports showcase crucial information that creditors can use to assess whether or not to engage with a business, such as:

• RiskScore – from A1 to F
• Number of credit enquiries
• Defaults registered against the company
• ATO tax debt defaults above $100,000
• Court actions
• Cross directorship information
• ASIC notices published against the business

Why is it important to build a business credit profile?

Building a business credit profile can provide a wider range of capital at a potentially lower cost. A solid credit history increases your chances of securing the financial resources needed to grow your business. If a business has a history of late payments or defaulting on loans, there is a higher chance that this behaviour will occur again. This recurrence is a fundamental factor that influences your chances of approval for business credit.

A business credit profile helps to develop credibility and trust with lenders and suppliers and signals that your business is financially responsible and capable of meeting any obligations.

Further, if you strengthen and improve your company credit score and credit profile, you open more doors for financing options. Businesses with strong credit profiles often enjoy better terms and lower interest rates. A healthy credit score may benefit your bottom line, help your business to grow faster, and give you the edge over competitors.

How to build your business credit profile

Register your business

The first step businesses should take to build a credit profile is formally registering the business as a legal entity. If you’ve not yet done so, visit the Australian Business Register and apply for your Australian Business Number (ABN), a unique 11-digit number that identifies your business to the government and community.

Open a business bank account

Creating a distinct boundary between your personal and business finances is fundamental for building business credit. If you’re still relying on your personal accounts, you’ll never be able to grow a company credit history.

Open a dedicated business bank account and consider purchasing a business phone line to reinforce this separation. This process can also assist you in record-keeping, as you can better distinguish between business and personal expenses.

Apply for business credit cards

Taking out a business credit card can be helpful in building a business credit history. Using a business credit card responsibly demonstrates positive payment behaviour. Be sure to carefully compare your options against the business budget, including factors like interest rates and fees, so that you do not risk accruing debt.

Pay your bills on time

One of the key ways a business develops its credit profile (or destroys it) is the timeliness of its bill and invoice repayments. From utility bills and office rent to client and supplier invoices, consistent and timely payments through your business bank account will contribute to your business credit score.

Conversely, consistent late payments can result in court action by the owed parties and a late payment or default notice lodged against the business. These adverse events can negatively impact a business credit score, making you less likely to secure business credit.

Develop lines of trade credit

Trade credit allows a customer to defer payment for goods or services delivered. Trade credit can be a valuable financial tool for businesses, leveraging your relationships with suppliers for mutual benefit. Ensure that you make timely payments, as positive trade credit references can help to build a strong business credit profile in Australia. Paying on time also helps you avoid having a payment default registered against you with a credit reporting bureau, which can be extremely detrimental to you chances of securing credit of any kind.