Understanding Credit for Your Small Business

By Jessica Caban, Center for Rural Affairs

Credit is a tool that lets you borrow money, or access goods and services, with the promise to pay later. It’s essential for personal and business finances, enabling large purchases, like homes or cars, and helping small businesses grow.

Lenders use credit reports and scores, to decide whether to approve loans and set interest rates.

What is a credit score? A credit score is a three-digit number (300-850) that measures your credit-worthiness, based on your financial history. It helps lenders predict how likely you are to repay a loan.

Your personal credit score is tied to your Social Security number, while a business credit score is linked to an EIN and evaluates your business’s financial health.

Why do credit scores matter for small business owners? Although personal credit and business credit are different, your personal credit score can still impact your small business. From securing lower interest rates to building trust with potential investors or partners, your personal credit score could help with the following:

• Securing Loans – Lenders may use personal credit scores to approve business loans and offer lower interest rates.

• Building Trust – A good score helps establish credibility with suppliers, investors and partners.

• Managing Cash Flow – Access to affordable credit provides flexibility during slow seasons or emergencies.

Where can you check your credit score? Many banks and credit card providers offer free credit scores. You can also use services like Credit Karma or buy scores from bureaus like Experian, Equifax or TransUnion.

How do I build or improve my credit score: Pay bills on time, keep credit utilization below 30 percent or lower, maintain older credit accounts, limit new credit applications and diversify your credit mix responsibly.

Good credit opens doors to financial opportunities. By being proactive, you can strengthen your credit and secure your financial future.

Established in 1973, the Center for Rural Affairs is a private, non-profit organization, working to strengthen small businesses, family farms and ranches, and rural communities, through action-oriented programs addressing social, economic and environmental issues.