How to Build Business Credit in Canada

Your business credit matters more than you may realize. If you have a good business credit score in Canada, you’ll find it easier to secure loans and lines of credit when the time comes for expansion. You’ll also have access to short-term financing solutions if you ever have to overcome temporary cash flow issues.

Not to mention, if you establish business credit, you could access lower interest rates, saving money over time. Also, suppliers and vendors will offer you better terms, saving you more money. Given the immense benefits of good credit, you likely want to learn more about how to build business credit in Canada. That is where we come into the picture.

At Bizfund, we have expert insights on building business credit, and today we’re sharing them. We’ve discussed the steps you need to take to establish business credit. We also talk about how to monitor your credit scores and the common mistakes you should avoid.

Business Credit vs Personal Credit

Firstly, there is a difference between business and personal credit. Although the two work similarly, the key difference is the entity responsible for the debts. For instance, if you open accounts in your name, you’re accountable for paying them back and building your credit.

In contrast, if your company opens accounts and acquires debt in its own name, the business is responsible for the repayments. Most business owners find it more beneficial to separate their personal and business credit profiles, as it helps protect assets.

Steps to Establish Business Credit

If you’re ready to learn how to build business credit in Canada, here are the simplest steps you should follow:

Start With The Foundation

Before you can begin building your business credit, you need to have a company foundation in place. This means you need to establish everything important for your business. Usually, this starts with choosing a distinctive and appropriate business name that reflects your company’s mission and identity.

Then you need to secure a digital or physical location and craft a detailed business plan. This plan must outline your business strategies, goals, market analysis, and financial projections. Once you’ve done this, you can open a business bank account. Then you must create a website that sets your company’s direction and demonstrates your trustworthiness.

Formalize Your Business Structure

With the foundation laid, you can then move on to formulating your business structure. Typically, to do this, you need to choose a legal entity for operations such as a partnership, sole proprietorship, LLC, or corporation.

It’s important to take your time when choosing between these. Your decision has significant tax and legal implications and will help separate your personal and business finances. However, once you know the structure, you can move on to registering your business and obtaining licenses and permits.

Most provinces in Canada, and their municipalities, require businesses to hold licenses and permits to operate, but the requirements vary. So it’s important to do your due diligence. Learn which apply to your company and industry, and secure those before you build credit.  

Secure a DUNS Number

You need to get a DUNS number. This will serve as your business’s unique identifier after you’ve completed the registration process. This number is important because lenders use it to assess your business’s credit profile.

Usually, getting a DUNS number isn’t too difficult, but it will require paperwork, and it can take up to 30 days for the department to process your application. The process is free, but if you want expedited processing, there is usually a fee of around $229.

Establish Trade Lines With Reporting Vendors

With your business set up, you can officially start building your credit. This means you need to get accounts that report your repayment history to Canada’s credit bureaus, such as Dun & Bradstreet, Equifax, or Experian.

In most instances, it’s a good move to build an initial payment history with vendors that report to business credit bureaus through trade lines or net-30 accounts. With these accounts, you can purchase goods that your company needs and repay the balance within 30 days.

After consistently doing so, you’re helping improve your business credit profile by showing you’re a low risk because you pay on time consistently.

Some of the best trade lines or net-30 day accounts to consider include office supply companies, certain fuel and equipment suppliers, and shipping providers. However, what’s more important is your payment behavior, not necessarily what you buy.

Apply for a Separate Business Credit Card or Line of Credit

Once you have trade lines and have built up an initial repayment history, you’ll be in a better position to improve your credit further by applying for a company credit card or line of credit. Given that you have some history, it should be easier to apply for higher-level credit products.

If you have to choose between the two, a business credit card is usually the easiest place to start since approval requirements are usually more flexible. Once you manage to make regular payments on your credit card, you can then re-examine a line of credit.

In addition, if you were hoping to secure a traditional bank loan after establishing trade lines, a line of credit, or a credit card, you might be disappointed. We hate to be the bad news carriers, but bank loans are harder to qualify for, especially if your business is less than 2 years old. Fortunately, there is an alternative if you need access to working capital and want to build your credit – a merchant cash advance (MCA).

An MCA is an alternative financing option offered by companies like Bizfund. It is usually easier to qualify for, and it can offer you fast access to working capital. If you manage it responsibly, you can support your business’s cash flow while contributing to its overall financial credibility.

Monitoring Your Business Credit

When you start to build business credit in Canada, and even after you’re well on your way to having a strong credit profile, you need to monitor things. If you regularly monitor your business credit, you can track your progress and immediately spot and address any inaccuracies.

If you don’t monitor your credit profile, you risk your score being lowered by errors in payment history or business details. There are places like Equifax and TransUnion that you can use to check your business credit profile routinely.

Common Mistakes That Hurt Business Credit

Unfortunately, building your credit history can involve some level of trial and error. That’s why it’s important to try to avoid the ‘error’ as much as you can. Below, we share a few of the common mistakes that can hurt your business credit so that you know what to avoid in the future:

• Missing payment deadlines: This is likely the worst mistake you can make when it comes to building business credit in Canada. Often, late payments damage your credit and can make you look higher risk. Even one missed payment is one too many. If you want to avoid this, set up automated payments or align your repayments with your cash flow.
• Applying for too much credit: We know it can be rather tempting to apply for more credit when you start seeing approvals, thanks to your credit score becoming better, but don’t. Not unless you need to. If you take out too much credit in a short period, it can lead to hard inquiries on your business credit report, which can lower your score. It could also lead to you defaulting on payments in the future.
• Working with the wrong vendors: Unfortunately, not all vendors report payment history to credit bureaus in Canada. This means you need to be somewhat selective to ensure you’re working with the right vendors that will help you build your credit profile.

In addition to the above, you also need to try to maintain a credit utilization rate of below 30% so that you can avoid score drops.

Using Good Credit to Access Better Financing

The simple truth is that when you build business credit in Canada and maintain a good profile, you have access to better financing. This means you could benefit from lower interest rates, more flexible repayment terms, and higher loan limits.

Over time, the better your credit becomes, the more doors you open to financing solutions, including lines of credit, equipment financing, and growth funding that is far more affordable and easier to manage.

The Key Takeaways on How to Build Business Credit in Canada

Building business credit in Canada isn’t as difficult as you may have first believed. Now you know a few simple steps to help you start building your credit and begin achieving your goals. You also have a better understanding of what not to do, and that monitoring your profile is incredibly important to your business.

​However, if you need a little help with financing, we can assist at Bizfund. Our team can help walk you through our merchant cash advances, explaining how they work and how they can help you build credit. To learn more, contact us here or apply here if you’re ready.