If you want to grow your business, establish strong relationships with suppliers, and access capital such as SME loans, you need good business credit in Canada. However, it can be challenging to understand how to build business credit in Canada. That is why we have put together this guide. Today, Bizfund explores the step-by-step process for building a better business score and how this can impact your loan eligibility if you need financing.
What is Business Credit?
You can think of your company’s business credit as your financial reputation. This score shows how your company manages debt, pays bills, and handles financial obligations. In simple terms, it reflects your Canadian business’s ability to repay borrowed money. It demonstrates to lenders, insurers, and suppliers your trustworthiness as a borrower.
Additionally, business credit in Canada operates similarly to personal credit. However, the main difference is that it isn’t tied to you as an individual. Instead, it is linked directly to your business entity. Although this might not seem like it, it’s a good thing. It allows others to evaluate your business’s financial health separately from your own.
Why It Matters
Knowing your business credit score is essential. It can help you determine if you need to take steps to improve it. But why does having a credit score in the first place truly matter? It’s simple, having a strong business credit score may:
- Potentially unlock better supplier terms and trade credit.
- Save your company with lower insurance premiums and interest rates.
- Assist in securing longer payment terms for your business with suppliers.
- Potentially assist with qualifying for lines of credit, business loans, and merchant cash advances.
- Assist with qualifying for bigger contracts with larger businesses.
Additionally, having a stronger credit profile can also help improve your reputation with service providers and landlords.
How to Build Business Credit – The Steps to Take
Building business credit in Canada requires time and consistent effort. However, as long as you closely follow the steps below, you should have a foundation of how to go about it:
- Register Your Business and Obtain a Business Number (BN)
Before you begin building your business credit in Canada, you need to register your company with your provincial or federal authority. Some people find that registering as a sole proprietorship is the best decision, but for a clear separation between personal and business finances, becoming incorporated is usually the better choice. When you become incorporated, you have a better risk profile with lenders and suppliers.
Once registered as a business, you need to obtain a business number, known as a BN. You’ll get this from the Canada Revenue Agency. Your business BN acts as your unique tax identifier for payroll, GST/HST, and corporate filings. With this number, you’ll have a separate, traceable business identity, allowing you to build a credit score under your business name, not your personal one.
- Open a Canadian Business Bank Account
For step two, you’ll need to open up your own business bank account with a Canadian credit union or bank. With a business, you can keep your finances clean and separate if you’ve incorporated. This helps with building your credit score.
Having a dedicated bank account strengthens your credibility. In today’s digital age, many fintech platforms, lenders, and merchant processes require business bank statements before approving financing.
With your own business bank statements, you show lenders you’re receiving consistent revenue and have a stable cash flow. It can also demonstrate responsible financial management.
- Obtain a D-U-N-S Number
Like the US, Canada uses the D-U-N-S Number, so it’s crucial to obtain a free one. This number plays a significant role in establishing a credit file, as it enables you to be tracked in D&B’s global credit system.
It also provides a platform where lenders and vendors can report your payment history, which is crucial for building and strengthening your business credit score over time. Additionally, you often need this number for supplier applications, government contracts, and many business credit products.
- Establish Vendor Accounts and Revolving Tradelines That Report
With a D-U-N-S Number, the next logical step is to establish vendor accounts and revolving trade lines. Every active tradeline helps your business build a stronger credit file, especially when they report to the D&B (as you know) or Equifax Canada.
However, not all vendors and revolving tradelines report your payment activity, so you need to choose your accounts strategically. This often means choosing:
- Net 30 or net 60 vendor accounts with wholesalers, industrial suppliers, or office suppliers.
- Business credit cards from major Canadian banks.
- Fintech reporting tools and platforms, such as software subscriptions, report utilities, and recurring payments to credit bureaus.
- Small business loans or lines of credit through fintech companies, credit unions, or banks.
- Pay On Time (or Early) and Keep Utilization Low
In Canada, as is the case in many other parts of the world, payment history is one of the most significant factors in business credit scoring. With this in mind, the next step is making sure you pay on time or early. This means paying credit cards, invoices, and loans on time or early to improve your business reputation with vendors. Unfortunately, even one late payment can negatively impact your file, so it’s best to avoid missing payments.
Besides paying on time or early, you also need to monitor your credit utilization. This is especially true for your revolving accounts, such as business credit cards. If you have a high utilization rate, it suggests financial strain, which negatively affects your business credit score.
Try to keep all balances below 30% of your credit limit. Over time, your score will steadily improve as you make timely payments.
- Monitor Your Business Credit and Dispute Errors
The last step is one you will have to keep doing. It involves routinely checking your credit files with Equifax Canada and D&B Canada. If you regularly review your business credit reports, you can keep track of new tradelines and identify mistakes or fraudulent accounts early, allowing you to address them promptly.
You can also confirm that vendors are reporting information correctly. Ultimately, checking your credit reports regularly with the credit bureaus allows you to ensure that lenders are seeing the best possible version of your financial business. This will go a long way in helping you secure financing, establish supplier accounts, and lease equipment in the long run.
Maintaining a Good Score
If you want to maintain a strong business credit in Canada, you need to practice discipline. One-time actions (primarily the wrong actions) will get you nowhere. In today’s day and age, you need good credit for most things.
Of course, there are alternative financing solutions, such as merchant cash advances, that don’t rely as heavily on credit scores, but they still matter. So, to maintain your business credit score, try to:
- Show consistent financial behaviour by keeping your balances manageable.
- Stay organized with your payments (you already know to stay up to date with them).
- Ensure that your credit activity is always transparent and up-to-date with the credit bureaus. (This is where routinely checking is essential.)
- Manage relationships with lenders and suppliers to ensure they consistently report accurate information that supports your business’s current performance and financial status.
If you follow the above tips, you’re far more likely to ensure your business credit score and reports remain attractive to suppliers and lenders.
How Does Financing Help A Business Once It Has Established Credit
When you have strong business credit in Canada, it signals to Canadian lenders, including credit unions, banks, and alternative funders, that your company manages debt responsibly. When this is the case, it directly improves your loan eligibility because lenders see your company as lower risk.
Because of this, you’re far more likely to qualify for a bigger range of financing options, including equipment financing, lines of credit, term loans, and government-backed programs like the CSBFP. What’s more, a healthier credit profile means you can get approvals faster, enjoy higher credit limits, and secure more competitive interest rates.
At the end of the day, this means you can invest in growth for your business, including in hiring, marketing, equipment, and operational expansions.
Key Takeaways
To put it simply, better business scores mean improved financing eligibility and more room for growth. We hope that you now know the steps required to build and maintain credit in Canada. This should allow you to reap the potential financial benefits associated with borrowing.
If your business is ready to explore financing options with its current credit score, consider a merchant cash advance with Bizfund. We offer between $10,000 and $300,000 that you can use to help make or keep your company successful. We also don’t rely solely on your credit profile when assessing eligibility. Contact us here to learn more.
