You can have the best bread or baked goods in your area, but if no one finds your business, it won’t matter.
In the credit world, when a person or businesses doesn’t have a credit history, they are sometimes referred to as a “credit ghost”. As far as the credit bureaus are concerned, they don’t exist.
Being a credit ghost can put your business in almost the same category as bad credit can; making it difficult to access affordable financing for equipment, inventory, expansion, or managing cash flow.
A surprising number of bakery owners will find their businesses are "credit ghosts" – essentially invisible to lenders due to their limited credit history.
The Hidden Challenge
Business owners who lack either a personal credit history, business credit history, or both may find themselves facing significant financial obstacles. Without established credit, bakery owners often get denied for traditional bank loans and lines of credit, forcing them to rely on expensive alternative lenders or personal savings. This can severely limit growth opportunities and put operations at risk during cash flow shortages.
Small business owners with poor credit (scores of 620 or lower) represent a substantial portion of entrepreneurs seeking financing. For bakery owners, who often need regular capital for equipment upgrades, seasonal inventory, and or to tide them over when cash flow is tight, being a credit ghost can be particularly devastating.
Who's at Risk?
Several groups are especially vulnerable to becoming credit ghosts:
- New business owners who haven't yet established business credit histories
- Immigrant entrepreneurs whose credit histories from other countries don't transfer to the U.S.
- Cash-focused operators who have avoided credit products and paid for everything upfront
- Minority business owners who may face additional barriers to accessing credit
The impact goes beyond just loan approvals. Anyone can check your business credit history.
With little or no credit history, you may face higher equipment lease rates, struggle to establish trade credit with suppliers, and often must provide personal guarantees even for small business accounts.
The Cost of Invisibility
A lack of credit may force business owners into more expensive financing options. Alternative lenders often charge significantly higher rates than traditional banks, and their complex terms can trap businesses in expensive financing products.
This financing burden can prevent bakeries from:
- Investing in efficient equipment that could reduce labor costs
- Expanding product lines or locations
- Building inventory for seasonal demands
- Weathering economic downturns
Building Your Credit Profile
Fortunately, establishing strong credit doesn't take years. And you can work on your personal credit and business credit at the same time.
Of course, before you can build credit you need to check your credit reports to see what each bureau reports.
For personal credit, the major credit bureaus are Equifax, Experian, and TransUnion.
For business credit, they are Dun & Bradstreet, Equifax Business, and Experian Business. In addition, the Small Business Financial Exchange acts like a credit warehouse and collects information about business payment history, but only supplies it to commercial credit bureaus.
Personal Creditbuilding Steps
If you can’t qualify for personal credit cards, consider a secured credit card to help build your credit history. These cards require a deposit but function like regular credit cards for reporting purposes. Credit builder loans are another option; you make payments toward a savings account and those payments are reported to credit bureaus.
Once you have credit accounts, focus on keeping your balances below 30% of available credit limits (this ratio is called “credit utilization”) and making payments on time without exception.
Business Creditbuilding Steps
You need accounts that report to business credit bureaus to build your business credit history.
One place to start: request trade credit terms from your suppliers – even net-30 terms help establish business credit relationships, as long as those payments are reported.
Apply for business credit cards in your company name rather than relying solely on personal cards for business expenses. Work to establish credit lines with business suppliers like equipment dealers, as these relationships often report to the SBFE and/or to commercial credit bureaus.
Most importantly, ensure that your creditors actually report your payment history to the business credit bureaus, as not all vendors do this automatically.
The Path Forward
Established credit can help business owners access more competitive equipment financing, establish relationships with multiple lenders, and maintain better cash flow management.
The key is to take proactive steps to build credit, regardless of your current situation. Even secured credit cards and small trade credit agreements begin building the payment history that future lenders want to see.
Remember, your bakery's financial health depends not just on daily sales and quality products, but also on maintaining the credit profile needed to access capital when opportunities arise. Don't let your business become a ghost in the eyes of lenders – start building your credit foundation today.
ABOUT THE AUTHOR
Source: Gerri DetweilerGerri 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 that helps small businesses owners build and manage their business and personal credit, track cash flow patterns, and understand their financing options before they apply.
