When it comes to obtaining funding for your business – a line of credit, SBA loan, or financing to buy equipment or inventory – having a strong business credit score can make all the difference in getting approved. Obtaining a solid business credit score is a little more complicated than just paying your loans on time. Unlike personal credit, it can take much longer to build your business credit since not all loans or vendor report to credit agencies.
Business credit does work similar to personal credit – you are assigned a numerical score that represents your creditworthiness. The higher the score the more likely you are to be approved for a loan and at more favorable terms. A lower score means you are a riskier applicant and it may be harder to achieve a loan and your terms may be less than ideal.
Credit isn’t just for obtaining loans, your business credit score can also impact your ability to lease office space or equipment and of course, it can impact your business’s reputation. Beyond the traditional credit bureaus like Equifax and Experian who look at the number of accounts, balances, payment history, etc., Dun & Bradstreet also evaluates business credit using their own PAYDEX score which is derived from how quickly a business repays its debts. Late payments lower the score and early payment increase the score. The goal of each: assess risk so that lenders and investors can assess risk quickly.
In addition to building your business credit as early as possible, there are a few strategic steps you can take to increase your loan approval odds for the future.
Check Your Business Credit Report – Just like with your personal credit, you should check and monitor your score often. You should pay attention to your business credit score – ranging from 1 to 100, with 100 representing a perfect score. Look for any negative point items like missed or late payments. High balances can also bring your score down. Look for ways to improve your score based on the items that are lowering it. Free options for checking your business credit are Dun & Bradstreet CreditSignal and Nav business credit reports. There are also paid services such as Experian business credit report and Equifax business credit report.
Fix Errors or Issues – Errors happen on occasion, which is why you should monitor your credit standing regularly. Incorrect or outdated information should be corrected as quickly as possible since it could slow down the lending process or even lead to a denial.
Ask Vendors to Report Payment History – Not all creditors or vendors report to agencies. It’s not required for companies to report, however if you have long-standing relationships with vendors, these could aide in boosting your credit score if you have a solid payment history. If you don’t already have documented payment history on your credit report, it might be worth asking vendors if they’re willing to submit your information. You’ll need to request a D-U-N-S number if you’d like them to report to Dun & Bradstreet. If many of your vendors don’t report, it may be worth establishing new tradelines with vendors known to report on-time payments to agencies.
Always Pay on Time – This seems obvious, but it’s worth mentioning because on-time payments make up a large portion of your credit score and it’s the best way to show you are at low-risk for delinquency. Make sure to pay at least the minimum amounts due and if possible, set up automatic billing so you never miss a payment.
Avoid Over Utilizing Your Credit – Simply put, agencies will look at the amount of credit that’s been extended to you vs. the total debt that you are carrying. If your debt is close to your credit limit, especially for a long period or time, this can signal a big risk factor towards business failure. Keep your credit utilization at 30% or less.
Your business credit score isn’t the only factor that lenders use when determining how credit worthy you are, but it is the most important. A strong credit history and score can help you grow your business in the long run all by just doing a few simple things. Have questions about securing a business loan – give us a call!
Senior Vice President, Commercial Team Leader