Business Credit Builder Loan: What to Know

Access to funding hinges on your business credit, and every small business owner has to start somewhere.

One great way to build credit is with a business credit builder loan.

Understand your options, the advantages and disadvantages of business credit builder loans, and alternative credit-building sources before you apply.

What Is A Business Credit Builder Loan?

A business credit builder loan is a credit-building asset designed for businesses with low credit scores.

If you qualify, you receive a loan up to a specific amount. It doesn’t function like a traditional loan, however. You don’t receive any of the funds in the loan agreement.

Rather, you pay off the agreed amount per month. That amount is locked away in a savings account until you’ve reached the full loan amount. Then, it’s disbursed back to your company.

Doing so allows you to build your business credit at no risk to you. Each payment is reported to a major business credit bureau, and you receive all your money back once you’ve “paid off” the loan.

You don’t receive any funding, but you do receive positive credit reporting.

“Credit builder loan” is a bit of a misnomer. It helps you build credit, but you aren’t receiving money that you can spend. A more accurate term is “credit builder account”.

It’s one option worth considering as you seek to build business credit.

Best Business Credit Builder Loans

CreditStrong Business Loans

CreditStrong is very much the go-to for business credit builder loans. In fact, you’ll be hard pressed to find any other options for these types of loans. This includes business credit builder loans from business credit building companies and traditional institutions.

They offer 0% interest rate credit builder accounts for small businesses. These come in the form of 25-month and 50-month credit account options.

The former helps you build credit fast, but builds less credit history and requires higher monthly payments.

The latter reduces your overall monthly payments and helps you build a more extensive business credit history. However, it requires a longer loan term before you’re able to see your money again.

There are a few notable advantages that come with using CreditStrong, including:

• Your loans are reported to four business credit bureaus: Equifax, Experian, PayNet, and the SBFE (which in turn relays information to D&B, Equifax, and Experian).
• You receive a free Equifax Business Delinquency Financial Score grade. This can help you track your business credit as you build it. It’s not a full business credit report, but it’s a good perk.
• You can cancel your business credit loan agreement at any time without a fee or penalty. While you may not be aiming to do this, having the option is nice.

Given that it’s really the only business credit builder loan option available to businesses nationally, CreditStrong has a lot to offer businesses looking to build their credit.

But what are other options worth considering?

FairFigure Capital Card

The FairFigure Capital Card is an EIN-only business credit builder card. It requires no personal guarantee, no personal credit checks, and no paperwork.

It’s important to preface this recommendation by stating that it’s not a business credit builder loan. Rather, the FairFigure Capital Card is recommended here because it’s a financial tradeline that involves no security deposit.

You get a credit-building solution that requires no deposit and features no APR. And, unlike a business credit builder loan, you also get funded along the way while building credit history.

Funding is based entirely on your revenue. The more you make, the more funding you can receive. They adjust this credit line over time as your business grows.

All you need to qualify for the card is a business that’s at least three months old and has $2,500 in recurring monthly revenue.

The FairFigure Capital Card helps you build credit by reporting to multiple business credit bureaus. These include Equifax, CreditSafe, and the SBFE. They also report to their own FairFigure Foundation.

The FairFigure Capital Card comes with useful features like being able to choose your own payback terms. If you’re interested in the FairFigure Capital Card, you will have to sign up for business credit monitoring services first to access it.

This costs $30 a month. However, it’s worth it if you want to build credit with two tradelines and keep a close eye on your business credit as you progress.

Business Credit Builder Loan Advantages

You Receive a Financial Tradeline for More Effective Credit Building

Financial tradelines are typically more difficult to acquire than, say, vendor tradelines.

Vendor credit is a useful resource in helping you build credit. However, financial tradelines offer a stronger impact.

With a business credit builder loan, you can tap into a financial tradeline that has more weight on your business credit score. This allows you to get faster results so you can start funding your business after building business credit.

Your Money Is Saved, Not Repaid

The one highlight of a business credit builder loan is that you don’t have to pay anything.

These types of loans don’t fund your business. It’s not a traditional installment loan. You’re just paying toward the loan amount you agreed upon.

That money then sits in a savings account until you reach the end of your agreement.

You’re not losing any money when you’re making payments and building credit. You get your money back once you’re done “paying off” the loan amount. These loan terms are great when you’re first getting started.

It Acts As a Stepping Stone to More Traditional Credit Building Solutions

One advantage that isn’t often highlighted is the benefit of working with credit builder loan providers.

Institutions that offer credit builder loans may either offer other financial solutions directly or indirectly. They’re a lender or they work with a lender.

If you pay off your business credit builder loan, the lender you worked with or those behind the credit builder loan may be more willing to offer you other credit solutions that might otherwise be inaccessible.

It’s a benefit worth keeping in mind as you shop around for credit-building loans. You can build your credit score and tap into better loan options with a lender you have an existing relationship with.

Business Credit Builder Loan Disadvantages

You Don’t Receive Any Financing

The point of securing a business loan is to fund your business.

When you apply for a business credit builder loan, you aren’t able to do that.

In fact, you’re putting money into an account instead. Depending on the terms you agree to, you may not see that money for a while.

You don’t receive any financing with a business credit builder loan. As such, it’s important to emphasize solutions that help you build credit while also bolstering cash flow for your small business.

You Could Encounter Additional Fees and Interest

Some business credit builder loan providers charge no fees or interest, but others do.

If you find yourself dealing with the latter, you end up losing money.

True, there’s generally a cost to most tools designed to support your business. But you shouldn’t be spending money unnecessarily if you don’t have to.

Credit Builder Loan Options Are Limited

One of the biggest disadvantages of seeking out a business credit builder loan is a lack of options.

If you were to search for a business credit builder loan, most of what would come up for you would be personal credit builder loans.

Business credit builder loans aren’t offered by many traditional financial institutions. Those that are tend to come with very specific requirements that make them more trouble than they’re worth.

Business credit builder loans aren’t bad tools for small business owners. However, they’re not nearly as popular as other credit solutions. This makes them less visible and often encourages small businesses to seek help elsewhere.

Is Getting A Business Credit Builder Loan Worth It?

Getting a business credit builder loan is a personal choice that you should weigh carefully.

On one hand, a business credit builder loan is an effective way to build credit fast.

If you choose the right repayment timeline, opt for business credit builder loans that feature few fees and no interest, and can do without the money you plan on using to pay the loan with, it can be a helpful addition to your credit-building strategy.

That being said, you don’t receive financing for your business. You also don’t have many options at your disposal. If you have cash flow issues, adding more costs to your plate to get good business credit might not be the right choice.

Alternative financing options may be a better fit.

A business credit builder loan can help you get good credit, but it’s not for every business with bad credit. Weigh the pros and cons in this guide to check whether it’s a solid business loan choice (or necessary) for your small business.

Build Business Credit with FairFigure

FairFigure not only makes it easy to build business credit, but it also helps you monitor your progress as you go and allows you to tap into funding to grow your business.

FairFigure is easy to qualify for, designed for small businesses with little to no business credit, and built to make an impact on your business credit.

Sign up with FairFigure now to begin your business credit-building journey!