Understanding Business vs Personal Credit: A Bakery Business Guide

Picture this: Your bakery's wholesale orders have doubled, and you need a new commercial mixer fast. And maybe you also need to expand to a larger space. 

Opportunities to grow can also feel daunting. How will you pay for them? 

Understanding business and personal credit, and leveraging them strategically to get financing, can be the key to turning these kinds of opportunities into reality.

Why Credit Matters for Your Bakery

As a new bakery owner, you likely started your business with personal funding or credit. Maybe you used a personal credit card for startup costs, tapped your savings or retirement funds, or got a loan from friends and family.

The Federal Reserve’s 2024 Report on Startup Firms notes that “Startup firms are more likely than older firms to face challenges with credit availability.”

Even as your business grows, you may find yourself relying on personal credit. Small business loans from banks, including SBA-guaranteed loans, often require personal credit checks. Most small business credit card issuers rely on personal credit scores when making credit decisions. 

Establishing business credit gives your business more options. As you build business credit, you may be able to borrow as a business, rather than personally. 

A solid business credit history can help your business:

• Secure better terms with suppliers
• Obtain equipment financing more easily
• Qualify for larger credit lines
• Negotiate better lease terms for new locations
• Get better rates on business insurance
• Earn bigger contracts

But while you’ve probably checked your personal credit or credit scores at some point, you may have never seen your business credit reports. When you do check them, you may be surprised at some of the differences. 

Key Similarities and Differences Between Business and Personal Credit

There are three major consumer credit reporting agencies: Equifax, Experian and TransUnion. And there are three major business credit reporting agencies: Dun & Bradstreet, Equifax, and Experian. (Business and personal credit data are always maintained separately.) 

Both business and personal credit reports compile information about payment history, and that information is used to calculate credit scores. 

But there are some key differences between the two types of reports. 

Payment History

If you’ve checked your personal credit reports, you’ve probably noticed that payment history falls into 30-day buckets. 

Business credit is more specific. It often reports "Days Beyond Terms" (DBT). For a bakery, this means if you have net-30 terms with your flour supplier and pay on day 35, that's recorded as 5 DBT.

Also worth noting: business credit scores can compare your bakery payment terms with other bakeries. 

Credit Access

There are strict limits on who can access personal credit reports and scores. For the most part, only creditors, insurance companies, employers, and debt collectors can review them. 

There’s no similar limitation on business credit reports. In addition to creditors and insurance companies, suppliers, lenders, or even customers can check your business credit. 

Want to sell to a popular restaurant? Cater a new venue? Or sell to a local health food store? A credit check may be part of the vetting process. 

When it comes to checking your own credit reports, you’re entitled by law to a free annual copy of your consumer credit report from all three major credit bureaus. Plus a number of companies offer free personal credit scores. 

There’s no similar requirement for free business credit reports. Business credit reports and scores aren’t as widely available, however online companies like Nav offer free or reduced costs to access business credit reports.  

What’s Reported

Business credit reports may contain a few types of information that won’t appear on personal credit reports. Judgements and tax liens haven’t been reported on consumer credit reports for several years now, for example, but they can still appear on business credit reports. 

And you’ll only see UCC filings on business credit reports. Here’s why. 

When you get financing, whether it’s equipment financing or a small business loan, the company providing financing will often file a UCC lien with the courts to notify other creditors of their interest in the property. 

Always check to make sure information about UCC filings listed on your business credit reports is accurate. Lenders don’t always file a notice of release when financing is paid off. 

Another difference: business credit reports don’t list the names of creditors or companies that report accounts. Your credit report may list a credit card, for example, but it won’t include the name of the credit card company. That can sometimes lead to confusion as you try to figure out which accounts appear on your credit reports. 

Building Business Credit for Your Bakery

Credit accounts are the essential ingredient in both personal and business credit reports. The main credit factors: payment history, credit age, debt usage, and new credit, all come from the accounts that appear on your credit reports. (When it comes to business credit, accounts are often called tradelines.)

Most businesses start building business credit with supplier accounts. Vendors often offer payment terms; net-30 terms, for example, means your business has thirty days to pay for items purchased. 

Ask your suppliers if you can get ingredients, packaging, or even cleaning supplies on credit. If they say yes, ask if they will report your payments to business credit bureaus. If those accounts are reported (not all are), and you pay on time, you can build a positive credit reference. 

Business credit cards are another popular way to build business credit. Most issuers require good personal credit, but if you’re approved, these cards typically report payment history to business credit, not personal credit. Pay on time and keep debt low to build another valuable credit reference that can boost your credit scores. 

Best Credit Practice for Your Bakery Business

Make it a habit to review your credit reports regularly; they are one indicator of the financial health of your business. If you see a mistake, dispute it. 

Don’t avoid credit completely. Without credit accounts that appear on your credit reports your business won’t have a credit history or credit scores. 

Stay current with your supplier invoices, ideally paying them before the due date. Try to pay down balances quickly. Building strong relationships with key vendors can also lead to longer payment terms over time, which can help manage cash flow during slower periods.

During busy seasons, like the holidays or wedding season, you may need to rely on credit more heavily, but pay it down as soon as you can. 

Smart bakery owners also plan ahead for future financing needs. Think of financial preparation as preparing your mise en place – having everything ready before you need it. 

Stay on top of your financials and cash flow. Look into financing options so you’re ready to move when opportunity (or emergency) arises. 

Looking Ahead

Think of building business credit as developing a signature recipe; it takes time, attention, and effort to get it right. You can’t rush it, but once you figure it out, it pays off over time. 

With strong business credit, that dream of expanding your wholesale kitchen, launching a line of packaged goods, or opening a second location becomes more achievable.

Good credit, both business and personal, can be as vital as the right recipes and equipment. When opportunity knocks–whether it's a chance to acquire a competing bakery, invest in automated equipment that could triple production, or secure a prime downtown location – having strong credit helps you keep moving your business forward. 

About the Author 

 Source: Gerri Detweiler

Gerri Detweiler has several decades of experience guiding individuals through the confusing world of credit, and has earned a reputation as a reliable and independent source on personal and small business credit. Today, Gerri serves as Education Consultant for Nav, a financial health platform for small businesses owners to build and manage their business and personal credit, track cash flow patterns, and understand their financing options before they apply.