There can be a lot of hurdles to opening a small business: lack of time, capital, or even experience. There’s one potential obstacle you shouldn’t let stand in your way: bad credit. 

That’s because business owners can build business credit even if their personal credit scores aren’t perfect. Here we’ll explain why and how to build business credit even with bad personal credit. 

The Goal of a Good Credit Score

 A strong credit history can open all kinds of doors for your business. It can help you get better financing with lower interest rates, higher credit limits or better repayment terms.

Good business credit specifically may: 

• Make it easier to get payment terms with vendors so you can buy the supplies your business needs now and pay for them later—hopefully out of cash flow. 
• Help your business get better interest rates and terms if you do get a small business loan or other types of business financing.
• Give other businesses the confidence to partner with your business as a contractor or supplier. 
• Help your business get lower business insurance premiums.

For all these reasons, it’s a good idea to establish good business credit for your business. 

At the same time, don’t plan on relying solely on business credit. Most business owners use a combination of business and personal credit to get financing for their small business, especially while their business is new, revenues are low (or declining), or when they are trying to get financing with SBA loans or through traditional lenders like banks. 

Can You Build Business Credit with Bad Personal Credit?

Even with a low credit score, you still may be able to build strong business credit. 

Business credit reports are compiled by business credit bureaus that include Dun & Bradstreet^®, Equifax^®, and Experian^®. Business credit bureaus often create their own business credit scores. 

Personal credit reports are compiled by major credit bureaus including Equifax, Experian, and TransUnion^®. The information in these credit reports are used to calculate credit scores, often using credit scoring models created by FICO^® or VantageScore^®. 

Business credit data and personal credit data are always maintained separately from one another. 

Because business credit and personal credit reports are completely separate, you can work on building each type of credit separately, if you understand how the process works.

Leveraging Credit Cards

Credit cards are often a popular way to build credit. If you don’t have a personal credit history, for example, experts often recommend starting with a personal credit card with a small limit, then paying it on time to establish credit. 

Business credit cards can also be a way to build business credit. Many business credit cards report to one or more major business credit reporting agencies and can be a powerful way to build credit. 

Do business credit cards report to personal credit? In most cases, no, though there are exceptions. 

Can I Get a Business Credit Card with a 500 Credit Score?

Most business credit card issuers check personal credit when evaluating applications. If you don’t have good or excellent personal credit scores, you’ll have fewer choices and you’ll likely need to choose a card that doesn’t require high personal credit scores. Options include a secured business credit card, or a charge card that doesn’t require a personal credit check. 

Learn about business credit cards for bad credit here. 

Can You Get a Business Credit Card with Just Your EIN?

Most lenders require a Social Security number when you apply for a business credit card because they will check personal credit. They also typically require a personal guarantee, which makes the business owner personally responsible for any unpaid debt. 

Many business credit card applications also request an Employer Identification Number (EIN) which is a tax id number for the business. (EINs aren’t required for all businesses, but are required if you form an LLC or corporation.) That doesn’t necessarily mean they will check business credit, though. It’s not as common for business cards to use business credit when approving accounts. 

Though there are a few EIN-only small business credit cards, options are limited.  

Navigating Credit Options for Small Businesses

Key to getting business financing is to understand your options, and what’s required to qualify for each type of credit account. 

Overcoming the Challenges of a Low Personal Credit Score

You’ll have more options for financing if you have good personal credit scores or good business credit scores. 

But don’t be discouraged if you’re not there yet. Though it may not be the easiest or more direct route, look for ways to move your business forward both financially and credit-wise. 

The Path to a Business Loan with Poor Personal Credit

Some types of financing are more flexible when it comes to personal credit. 

• Net-30 vendors typically don’t check personal credit scores.
• Business cash advances are often flexible when it comes to credit scores.
• Invoice factoring typically evaluates the creditworthiness of the client who owes the invoice.
• Some online lenders have more flexible credit score requirements. 
• Crowdfunding rarely checks credit. 

Some of these accounts also report to business credit bureaus. That means on-time payments can help build strong business credit. 

Can I Get a Business Line of Credit with Bad Credit?

Perhaps. If your business can stand on its own financially—with strong revenues, at least two years in business, and its own business credit history—it may be able to qualify for a line of credit without a personal credit check or personal guarantee. 

A line of credit gives you an amount of financing you can borrow as needed. You only pay interest on the amount you need. It’s a popular short-term 

But the reality is that many lenders will require good personal credit for unsecured loans. Small business loans from banks, including loans guaranteed by the Small Business Administration (SBA) often check personal credit. That’s especially true if your business is only a few years old or doesn’t have strong revenues. 

Structuring Your Business for Financial Independence

Many businesses operate as a sole proprietorship, which means there is no legal business structure. It’s the easiest way to start a business, but it also has drawbacks. One of those is associated with financing. Let’s explain. 

The Impact of Business Structure on Credit Opportunities

With a sole proprietorship there’s no legal separation between you and your business. 

While you can build business credit as a sole proprietor, you can’t truly get financing just in the name of your business because you and your business are one and the same.  

Forming a business entity like an LLC or corporation allows you to separate your personal finances from your business finances, 

And it can also open up more financing opportunities as certain types of financing are only available to business entities. And you can create an independent business credit profile that isn’t solely tied to your personal credit card usage or personal credit history.

Whether you form a business entity or not, open a business bank account for managing business expenses. It makes tax time easier, and also can help when it comes to qualifying for certain types of credit and financing. 

Read: Why a Business Bank Account is a Sol Props Bestie

Can I Start an LLC If I Have Bad Credit?

Your personal credit score has no bearing on your ability to form a Limited Liability Company (LLC). The LLC formation process focuses on legal requirements and proper documentation rather than creditworthiness. States don’t conduct credit checks when processing LLC registrations, so this business structure is available to entrepreneurs regardless of credit history.

Forming an LLC can actually help separate your personal credit challenges from your business credit profile. Once established, your LLC can obtain its own Employer Identification Number (EIN) from the IRS. This separation creates a foundation for building business credit independent of your personal credit history. Some vendors and credit issuers work specifically with LLCs or corporations without requiring personal credit checks, providing opportunities to establish initial trade lines and begin building business credit even with challenged personal credit.

The key benefits of an LLC for credit building come from the legal separation it creates between personal and business finances. As your LLC establishes payment history with vendors and creditors, it builds its own distinct credit file. 

Leveraging Alternative Financing and Credit Building Strategies

Entrepreneurs often get creative when it comes to finding what they need for their business, whether that’s employees or contractors, unique products, or cost-effective supplies or ingredients. 

That same resourcefulness can be helpful when it comes to getting financing. 

Innovative Ways to Build Credit and Secure Financing

Walking into a bank and getting a loan for your business isn’t always easy or feasible. That’s why you may need to look for alternative financing. 

One place to start: supplier or vendor credit. Your suppliers may allow you to buy items and pay for them later. Net-30 terms gives your business thirty days to pay, and that gives you more time to make a sale to pay for that purchase. 

And if those accounts report to business credit, you can build business credit by paying on time. 

Read: Net-30 Vendors That Help Build Business Credit

The Path Forward for Entrepreneurs with Bad Personal Credit

As a small business owner, your personal credit history doesn’t have to define your business’s financial future. Whether you’re a startup or established business, focus on building strong trade lines to build business credit. 

While personal guarantees may be required when you have a new business, strong business credit can eventually help your business qualify for additional types of financing. 

Monitor your business credit reports regularly and investigate if you find issues. 

Try to keep your credit utilization low. (Utilization measures your available credit by comparing your balances on revolving accounts like credit cards to your credit limits.)  

And it bears repeating, pay on time going forward. Late payments can significantly impact your ability to qualify for future financing, so maintain on time payments on all business accounts.

Accessing Resources to Strengthen Your Business’s Financial Health

You don’t have to go it alone on this journey. You can get free business mentoring from your Small Business Development Center (SBDC) or SCORE, two SBA Resource Partners. 

Nav Credit Health and Nav Prime can help your business build, manage, and monitor business credit, and find financing. And Cash Flow Help will make it easy to track all your accounts in one place.