How to Build and Establish Business Credit in Canada

One of the most important aspects of running a small business is establishing a reputation with strong business credit. In addition, having strong business credit will help you get access to financing easier, and manage business risk and cash flow.

Having said that, obtaining business credit is easier said than done – especially for new businesses that are just getting started. That’s why it might be tempting to use your personal credit for business purposes. This won’t help you build your business credit. The high credit utilization associated with business expenses can actually harm your personal credit.

Let’s take a closer look at what business credit is, why it’s important, and how you can establish and build business credit.

What is business credit?

Similar to personal credit, your business also has a credit score. It is the track record of your business’ financial health. Other businesses, investors and financial organizations use this score to determine your business’ credibility and how likely you are to repay borrowed money.

The two major credit bureaus in Canada are Equifax and TransUnion. They calculate your business credit. Each agency has a different calculation method but usually ranges from 0 to 100. It’s a good rule of thumb to aim for a score of 80 or higher.

Why should I care about business credit?

Having a strong business credit can help you grow your business. When you apply for a loan, the lenders rely on your business credit to determine your creditworthiness and set loan terms. An important thing to keep in mind is that anyone can view your business credit score. So it’s important to establish business credit from the start to receive better loan terms and interest rates.

As a small business owner, separating your business credit from personal credit will benefit you in the long run. Your business credit is connected to your business entity with a completely separate Tax number. It is not in any way linked to your personal name or social security. That is, if your business ever goes under, your personal credit won’t be affected in any way. 

8 steps to establish your business credit

1- Put your business on the map

Are you open for business? That’s great! But you can’t establish credit until you have fully established your business. This means getting a business phone number and listing it in your local directory. You should also have a website, and a bank account under your legal business name. This is the account you will regularly use to pay your business bills.

2 – Good relationships with vendors and suppliers

Once you get to the world of small businesses, you will soon realize that having a good relationship with industry vendors or suppliers is to your benefit. That is, the better your relationship, the more you are bound to avoid paying upfront for products or services. You can actually establish a good credit history when the vendors or suppliers report your payments to credit bureaus based on your line of credit or net-30 payment. Ensure to open accounts with vendors and suppliers that actually DO report to credit bureaus (some simply don’t)

3 – Get a business identification number

This is basically a 9-digit account number that identifies your business. Here’s where you can register. If you are incorporating your business in Quebec, you need to register for an NEQ.

4 – Pay your bills on time 

This is the most important step in any credit. When you pay your bills on time, it shows lenders that you are reliable and can manage your debt responsibly. Late payments can bring down your credit score and have a negative effect on your overall business report.

5 – Get incorporated!

If you arent’ already, get incorporated. The main reason for this is to have your personal and business credit history recorded separately and not legally attached. There are also many benefits to incorporating, such as easier access to funding, lower tax rates, limited liability and much more. Check out these steps on how to get incorporated

6 – Apply for a business credit card

As mentioned above, it’s a good idea to open a business credit card with an institution that reports to one or more of the major credit bureaus in Canada. One credit card is fine, but having more can be of great help. But be sure not to overuse your credit.

7 – Separate personal and business expenses

This may seem redundant but it is still a very important step. Any sort of credit cards, lines of credits or bank accounts you open should be under your business’ name. This will make it a lot easier for you to manage your business expenses, taxes, and qualify for a business loan. 

8 – Keep tabs on your credit

Check your business credit report regularly. A lot of small business owners have found significant errors in their reports. By monitoring it closely, you can spot issues sooner than later and take steps to fix them. If you do end up finding an error, you must file a dispute to one of the major credit reporting agencies.

How to build business credit 

So you have now established business credit. The next step is to build solid business credit. A lot of the steps above can help you achieve that but there are two important steps that you must focus on to boost your business credit history. 

1 – Pay early!

In the steps above we advised that you should pay your bills on time. Paying them early is even better! That is, some business credit scores give you extra credit for paying your bills before their due date. Also, payment information on credit reports is usually more detailed than personal ones. So the faster you pay, the quicker you can build your business credit score. 

2 – Choose vendors/ suppliers carefully

Essentially, the second piece of advice is to choose vendors or suppliers that report to various business credit agencies. Sometimes they report to one over the there. So be sure to check your reports regularly.

Final thoughts 

Ultimately, having a strong credit can significantly help you build your small business. First, follow the steps above to establish business credit in Canada, then follow up with building your credit score. Be sure to regularly check your reports with both Equifax and TransUnion. You can also sign up for Loop to get your personal and business credit scores for FREE! We will provide you with all the details necessary to build your credit score and eventually grow or expand your business.