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hen your business has a high credit score, you’re more likely to be approved for financing, you’ll qualify for better terms, and you’ll be in a stronger position to negotiate. Unfortunately, if your business is brand new or has had some credit setbacks, it can seem like an uphill battle to establish a good credit history. In this article, you’ll learn how long it takes to build a business credit history and how you can speed up the process.
How fast can you build business credit?
It can take three or more years to build a strong credit history for your business. However, there are steps you can take to start immediately, and you may qualify for some business credit opportunities after just one year.
You're probably familiar with your personal credit score, called your FICO score, which can range from 300 to 850. Your business credit score is a little different. It's measured on a scale of 1 to 100. Although it varies based on the reporting agencies, generally a score of 80 or above is good, while below 50 is poor. Although your score probably won’t qualify you for the best rates and terms after one year, you’ll likely be eligible for small loans in your business name. Getting credit in your business name is important because you won’t need to take out personal loans for your business. Keeping your business and personal finances separate is always a good idea.
Other business financing factors
Even if your business has a good credit score, that’s not the only factor that lenders will consider when you apply for a loan or line of credit. Lenders look at many different variables when determining whether to approve or deny your application—although your credit score is weighted heavily. Here are some other considerations.
How long you’ve been in business
When you apply for credit, lenders want to know how long you’ve been in business. To qualify for many types of loans, you’ll need to have been operating for at least two years. However, this varies by lender and the type of credit you’re seeking. With some types of loans, such as merchant cash advances, you may be able to qualify if you’ve only been in business for six months.
Your annual revenue and profit
Lenders want to know that you’re making enough money to pay back the loan. Most frequently, lenders set annual revenue requirements, but some may have a set requirement for monthly revenue. You’ll usually need to have an annual revenue of at least $100,000, but this may vary.
A business plan
Before they loan you money, the bank may ask for your business plan to evaluate how your business is run and how you plan to use the funds. Your business plan doesn’t have to be a Ph.D. thesis, but it should include a summary of your business, your product, and your market, as well as a competitive analysis and your financial records and projections.
Some industries are naturally more high-risk than others. If you’re operating in a high-risk industry, it may be harder for you to get credit. Businesses that are riskier include those in industries where there’s a higher likelihood of chargebacks or fraud. Some of these industries include:
- Casinos and gambling
- Tour operators
- Fantasy sports
How long does it take to establish a business line of credit?
There’s no set time limit for how long you need to have been in business to take out a line of credit. However, many lenders require two years. Some may be willing to work with you if you’ve only been in business for one year or, more rarely, six months. Don’t expect to get the best terms, though. You’ll usually pay higher interest rates if you haven’t been in business very long.
How to speed up business credit building
There are no shortcuts to building your business credit history, but there are steps you can take to speed up the process.
Legally establish a business entity
If you’re operating as a sole proprietorship, your business is not a separate legal entity. Establishing a business structure that separates you from your business will make it easier for you to build business credit. Register your business with your secretary of state with a formal business structure, such as an LLC or a corporation.
Get an EIN
You can apply for an employer identification number (EIN) from the IRS website. You’ll need an EIN to file business taxes, open a bank account, pay employees, and otherwise operate as a business. An EIN will help separate you and your business so you can build your business credit independently from your personal credit.
Open a business bank account
Another important step in separating your business and personal finances is opening a business bank account. It will help establish a financial history for your business and build a relationship that can lead to credit later. In many cases, you’ll need a business bank account to apply for credit.
A business bank account also helps protect your personal assets if your company can’t pay back debt. Handling your business finances through a dedicated checking account also makes it easier for you to supply the financial records many lenders will want to see.
Pay your bills on time (or early)
Paying your bills reliably every month proves to lenders and suppliers that you’re creditworthy. In addition to building trusting relationships with your vendors, paying your bills on time eliminates any possibility of a negative mark going on your credit report.
Whenever possible, you should also do business with companies that report to credit agencies. When other businesses report on your payments, it will generate a business credit report profile. As more activity is added to your credit profile, you’ll start to build a credit history. If you're working with a vendor that provides trade credit but doesn't report to any credit agencies, you can submit trade references yourself.
Check your credit
Once you have a business credit profile, check it regularly so you can quickly identify any incorrect information that may negatively impact your credit. There are three major business credit reporting agencies:
- Dun & Bradstreet
- Equifax Business
- Experian Business
To monitor your credit, register for a Dun & Bradstreet (DUNS) number. You'll need a different number for each physical location of your business. Once you have your DUNS number and a business credit profile, check with all three agencies to monitor your credit. If you notice anything inaccurate, you can contact them to have it removed.
Building a good business credit score can help your business thrive even in difficult times. Although it will take some time to build a credit history, you can get started right away. Novo’s business banking solution provides a complete platform that lets you handle all of your company’s financial records in one place. Sign up today to get started building a great future for your business.
Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.
Merchant Cash Advance products and services are offered by Novo Funding LLC (“Novo Funding”), a wholly owned subsidiary of Novo. Merchant Cash Advances require a Novo checking account.
Novo is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A.: Member FDIC.
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