Do you need good credit to start a business

open a business

You may need decent credit to start a business. Many business credit cards and loans will have credit score minimums you must meet for approval. 

If you are trying to open a business but have less than perfect credit, you may wonder if it is possible and how to go about it. The good news is that starting a business with imperfect credit may be possible. According to the U.S. Chamber of Commerce, there are over 32.5 million small businesses in the United States as of 2021.1 

Through alternative business loans and building business credit, you can get your business off the ground. Keep reading to learn about turning your business idea into reality, even with bad credit. 

Separating a Business’s Credit from Personal Credit

Business structure is essentially the company’s legal structure when establishing a new business. 

This structure will determine whether your personal credit will impact your business credit. This structure also defines your personal liability if things do not go as planned. 

Your personal credit will intertwine with your business’s credit if you are the sole proprietor. Therefore, in this scenario, any financial activity for a business, such as taking out a business loan, affects personal credit. 

However, a company classified as a Partnership, a Limited Liability Company (LLC), or a Corporation will separate your financial history and credit score from your business.

Whether your business is a sole proprietorship, has multiple owners, or is a corporation, a credit score will be attached to it. Variables that determine a business credit score include:: 

  • Payment history.
  • Debt-to-income ratio.
  • Credit account types, etc., 

Getting a Loan to Open a New Business with Bad Credit

Almost every business will need a loan at some point. This is especially true when you’re just starting or in a growing phase. Did you know that approximately 63% of new jobs created in the U.S. from 1995 – 2021 are credited to small businesses?2 

Business lenders will ask about your business structure, gauge the potential risk, and ask about how much money is coming in or expectations. Lenders may also inquire about the product or service that you have set up as a business idea. 

If you have bad credit and require a loan, consider following the bad credit loan options:

A Business Loan With a Down Payment

If your business credit isn’t great, providing a down payment with cash may help you secure a business loan.

Sign a Personal Guarantee

A personal guarantee is a clause that can be a part of a business loan. The borrower takes on the personal liability to repay the loan if their business cannot.

Providing Business Assets as Collateral

Another option to consider when applying for a business loan with bad credit is using an asset as collateral against the business loan.

Look For Loans and Grants From the SBA (Small Business Administration)

Funded by the federal government, The Small Business Administration provides various forms of support for small businesses and small business owners. When working with bad credit and securing a business loan, the SBA is a great place to start. 

They offer loans for all kinds of credit histories and can even provide free business counseling to help you plan your next business venture.

There are also all kinds of grants available from the SBA that you can apply for if you meet eligibility. 

Considering Personal Loan Options and Personal Assets

Many business owners, especially small business owners, tend to use personal loans to fund their businesses. 

When using a personal loan for a business, any defaults and missed payments will impact your personal credit.

Another option to take care of business costs if you cannot take on a loan is using personal assets. Simply selling assets for funds or using them for loan options can be one option. Be sure to review the advantages and disadvantages of unsecured vs. secured debt before choosing the loan option that is right for you. 

Getting a Bank Account for your Business with Less Than Perfect Credit

A business bank account is an integral part of paying taxes, building partnerships, and growing your business. These accounts also allow a company to borrow money, get a business credit card, and take payments from customers.

It can sometimes mean more complications when you have bad credit than when applying for business bank accounts with good credit. Banks will pay attention to your business as a whole, from the business idea to things like payments to past lenders. 

If you have no credit history, some banks/credit unions will ask that you build credit.

Look Elsewhere for a Business Bank Account

Suppose you need a bank account for your business, but have bad credit. In that case, your options may be limited to financial institutions that don’t look at credit history. Or you may have to accept limited credit options with a business bank account.

Consider Whether Your Business Plan Needs To Involve Credit

A business that operates from an in-home office space may not need to focus on credit to get started. Here are some potential costs that new business owners face but can be avoided depending on your business plan: 

  • The need to hire employees or a business partner
  • Have a business website
  • Buy business insurance
  • Purchase a brick-and-mortar business location 
  • Buy equipment 

Many freelance and independent contractors that are web-based or skill-based may avoid these costs. Below are a few examples of businesses and skills that don’t come with start-up costs: 

  • Working as a web developer 
  • Project management
  • Working as a writer 
  • Graphic arts and visual arts 

And so, it is possible to offer a product or service that can become a business without incurring start-up costs.

Improving Your Business’ Credit

Suppose you have a new business or are working with an established one as the business grows. In that case, building and maintaining a decent credit score (such as a tier three credit score or better) can help grow your small business. A few business essentials linked to credit score are; raising capital for insight with thorough market research, focus groups, and legal advice.

Although some small businesses and start-ups may not need credit to start, many will need credit for a competitive advantage over other companies offering a similar product or service.

When maintaining or building good business credit, approach it in a similar way to your personal credit:

Make On-time Payments for a Business Credit Card or Loans Making on-time payments to any debts your business is carrying will be an essential part of building positive credit.
Keep Track of Your Credit to Debt RatioAs a business owner, it will be vital to do some financial planning with an accounting system or simple budgeting. You will spend money; however, it can impact your business credit score when that money is through credit.
Check Your Business Credit With All the Major Business Credit Bureaus Another thing that will be helpful is to check your business credit reports from all major business credit reporting agencies. Check for inconsistencies and mistakes, and correct your business credit reports right away.
Know The Connection of Your Personal Credit to Your BusinessWhether your personal credit relates to your business will be determined by your business structure. Make sure you understand what your business structure is before making any major lending moves. 

Opening a Business with Less Than Perfect Credit is Possible!

When working with bad credit as a business owner, there are ways to get started and grow your business. There are bad credit loan options for business owners, ways to open up a bank account for your business, and not needing credit to get started.

FAQ: Credit and Starting a Business

What are some common mistakes people make when starting a business?

Not separating personal and business finances, not checking business credit reports regularly, and not understanding the importance of a good business credit score.

What are the biggest challenges I’ll face when starting a business?

Establishing business credit, managing business and personal finances, and securing a small business loan, especially with poor personal credit.

How can I make my business more successful?

Regularly check your business credit scores, maintain a good business credit history, and manage your personal and business finances effectively.

What are some common pitfalls to avoid when starting a business?

Neglecting your business credit reports, not understanding the impact of your personal financial history on your business, and not building a decent business credit score.

How can I make sure my business is sustainable?

Regularly review your business credit scores, manage your personal and business finances wisely, and maintain a good relationship with lenders.

What are some ways to market my business?

Leverage your good business credit score to secure funding for marketing campaigns.

Who said you need good credit to start a business?

Many financial advisors and lenders emphasize the importance of good personal and business credit when starting a business.

Who are you starting the business with?

This can vary, but remember that your business partner’s personal credit history can also impact your ability to secure a small business loan.

Who is your target market?

This will depend on your business, but a good business credit score can help you secure the funding needed to reach your target market.

Who is your competition?

Other businesses in your industry. A good business credit score can give you a competitive edge, especially when it comes to securing funding.

What is a good credit score?

A good personal credit score is generally considered to be 670 or above, while a good business credit score can vary depending on the scoring model used by the three major credit bureaus.

What are the benefits of having good credit?

Good personal and business credit can make it easier to secure loans, get lower interest rates, and can positively impact your business operations.

What are the consequences of having bad credit?

Poor personal credit can make it harder to get loans, result in higher interest rates, and can affect your ability to establish business credit.

Where do you need good credit to start a business?

Good credit is often needed when seeking business loans or lines of credit, particularly from traditional banks.

Where can you find good business credit?

Good business credit can be built over time by making on-time payments, keeping debt levels low, and managing your business finances responsibly.

How long does it take to build good business credit?

Building a good business credit score can take several months to a few years, depending on your business’s financial activities.

Can I start a business with a bankruptcy on my credit report?

Yes, but it may be more challenging to secure a small business loan and establish business credit.

How does my personal credit score affect my ability to get a business loan?

Lenders often consider your personal credit score when you’re applying for a small business loan, especially if your business is new and hasn’t established business credit.

Are there a specific business credit card that can help me build my business credit faster?

Yes, certain business credit cards report to the three major credit bureaus and can help you build your business credit fast.

How often should I check my business credit report and what should I look for?

You should check your business credit report at least annually. Look for any errors, fraudulent activity, and make sure all your business’s financial activities are accurately reported.

A Word From CreditNinja

Starting a business is a major endeavor that can significantly affect your personal as well as your professional life. It’s important to know all of the details, like whether you need collateral for a business loan. CreditNinja encourages anybody looking to open a business to take all the necessary precautionary steps to make sure their finances are protected. These steps include: 

  • Establishing a savings account so you have a safety net should you run into financial troubles. 
  • Checking your credit score regularly and report errors you find on your credit report promptly for correction. 
  • Create a budget that encompassess all your business needs to make sure you can afford everything. 
  • Keep track of your purchases and transactions to avoid overspending. 

Want more information on credit scores, installment loans, and handling your finances? Check out the CreditNinja blogroll for tons of free financial resources available 24/7!


  1. Small Business Statistics | Chamber of Commerce
  2. The State of Small Business in America | U.S. Chamber of Commerce
  3. Grants | U.S. Small Business Administration
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